Correlation Between Ariel International and Ariel Fund

Can any of the company-specific risk be diversified away by investing in both Ariel International and Ariel Fund 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 International and Ariel Fund into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ariel International Fund and Ariel Fund Institutional, you can compare the effects of market volatilities on Ariel International and Ariel Fund 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 International with a short position of Ariel Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ariel International and Ariel Fund.

Diversification Opportunities for Ariel International and Ariel Fund

-0.7

Correlation Coefficient

Ariel International  Ariel Fund

Excellent diversification

The 3 months correlation between Ariel and Ariel is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Ariel International Fund and Ariel Fund Institutional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ariel Fund Institutional and Ariel International 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 International Fund are associated (or correlated) with Ariel Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ariel Fund Institutional has no effect on the direction of Ariel International i.e., Ariel International and Ariel Fund go up and down completely randomly.

Pair Corralation between Ariel International and Ariel Fund

Assuming the 90 days horizon Ariel International Fund is expected to under-perform the Ariel Fund. But the mutual fund apears to be less risky and, when comparing its historical volatility, Ariel International Fund is 1.34 times less risky than Ariel Fund. The mutual fund trades about -0.06 of its potential returns per unit of risk. The Ariel Fund Institutional is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  7,411  in Ariel Fund Institutional on September 3, 2024 and sell it today you would earn a total of  854.00  from holding Ariel Fund Institutional or generate 11.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Ariel International Fund  vs.  Ariel Fund Institutional

Ariel International

Risk-Adjusted Performance

0 of 100

Very Weak

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

Ariel Fund Institutional

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ariel Fund Institutional are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Ariel Fund may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ariel International and Ariel Fund

The main advantage of trading using opposite Ariel International and Ariel Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ariel International position performs unexpectedly, Ariel Fund 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 Fund will offset losses from the drop in Ariel Fund's long position.

The idea behind Ariel International Fund and Ariel Fund Institutional 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.