Correlation Between Ariel Focus and Ariel Appreciation

Can any of the company-specific risk be diversified away by investing in both Ariel Focus and Ariel Appreciation at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Ariel Focus and Ariel Appreciation into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ariel Focus Fund and Ariel Appreciation Fund, you can compare the effects of market volatilities on Ariel Focus and Ariel Appreciation and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Ariel Focus with a short position of Ariel Appreciation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ariel Focus and Ariel Appreciation.

Diversification Opportunities for Ariel Focus and Ariel Appreciation

0.97

Correlation Coefficient

Ariel Focus  Ariel Appreciation

Almost no diversification

The 3 months correlation between Ariel and Ariel is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Ariel Focus Fund and Ariel Appreciation Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ariel Appreciation and Ariel Focus is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Ariel Focus Fund are associated (or correlated) with Ariel Appreciation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ariel Appreciation has no effect on the direction of Ariel Focus i.e., Ariel Focus and Ariel Appreciation go up and down completely randomly.

Pair Corralation between Ariel Focus and Ariel Appreciation

Assuming the 90 days horizon Ariel Focus Fund is expected to generate 0.9 times more return on investment than Ariel Appreciation. However, Ariel Focus Fund is 1.11 times less risky than Ariel Appreciation. It trades about -0.03 of its potential returns per unit of risk. Ariel Appreciation Fund is currently generating about -0.07 per unit of risk. If you would invest  1,620  in Ariel Focus Fund on December 28, 2024 and sell it today you would lose (35.00) from holding Ariel Focus Fund or give up 2.16% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.36%
Values	Daily Returns

Ariel Focus Fund  vs.  Ariel Appreciation Fund

Ariel Focus Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ariel Focus Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Ariel Focus is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ariel Appreciation

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ariel Appreciation Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Ariel Appreciation is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ariel Focus and Ariel Appreciation

The main advantage of trading using opposite Ariel Focus and Ariel Appreciation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ariel Focus position performs unexpectedly, Ariel Appreciation can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Ariel Appreciation will offset losses from the drop in Ariel Appreciation's long position.

The idea behind Ariel Focus Fund and Ariel Appreciation Fund pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.