Correlation Between Strategic Allocation: and Lifestyle

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

By analyzing existing cross correlation between Strategic Allocation Moderate and Lifestyle Ii Moderate, you can compare the effects of market volatilities on Strategic Allocation: and Lifestyle 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 Strategic Allocation: with a short position of Lifestyle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Strategic Allocation: and Lifestyle.

Diversification Opportunities for Strategic Allocation: and Lifestyle

0.8

Correlation Coefficient

Strategic Allocation:  Lifestyle

Very poor diversification

The 3 months correlation between Strategic and Lifestyle is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Strategic Allocation Moderate and Lifestyle Ii Moderate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lifestyle Ii Moderate and Strategic Allocation: 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 Strategic Allocation Moderate are associated (or correlated) with Lifestyle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lifestyle Ii Moderate has no effect on the direction of Strategic Allocation: i.e., Strategic Allocation: and Lifestyle go up and down completely randomly.

Pair Corralation between Strategic Allocation: and Lifestyle

Assuming the 90 days horizon Strategic Allocation Moderate is expected to under-perform the Lifestyle. In addition to that, Strategic Allocation: is 1.61 times more volatile than Lifestyle Ii Moderate. It trades about -0.05 of its total potential returns per unit of risk. Lifestyle Ii Moderate is currently generating about 0.01 per unit of volatility. If you would invest  1,087  in Lifestyle Ii Moderate on October 23, 2024 and sell it today you would earn a total of  3.00  from holding Lifestyle Ii Moderate or generate 0.28% return on investment over 90 days.

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

Strategic Allocation Moderate  vs.  Lifestyle Ii Moderate

Strategic Allocation:

Risk-Adjusted Performance

0 of 100

Very Weak

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

Lifestyle Ii Moderate

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lifestyle Ii Moderate are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Lifestyle is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Strategic Allocation: and Lifestyle

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

The idea behind Strategic Allocation Moderate and Lifestyle Ii Moderate 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.