Correlation Between Black Oak and Rational Defensive

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

By analyzing existing cross correlation between Black Oak Emerging and Rational Defensive Growth, you can compare the effects of market volatilities on Black Oak and Rational Defensive 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 Black Oak with a short position of Rational Defensive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Black Oak and Rational Defensive.

Diversification Opportunities for Black Oak and Rational Defensive

0.8

Correlation Coefficient

Black Oak  Rational Defensive

Very poor diversification

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

Pair Corralation between Black Oak and Rational Defensive

Assuming the 90 days horizon Black Oak is expected to generate 2.11 times less return on investment than Rational Defensive. In addition to that, Black Oak is 1.34 times more volatile than Rational Defensive Growth. It trades about 0.09 of its total potential returns per unit of risk. Rational Defensive Growth is currently generating about 0.26 per unit of volatility. If you would invest  3,606  in Rational Defensive Growth on September 13, 2024 and sell it today you would earn a total of  523.00  from holding Rational Defensive Growth or generate 14.5% return on investment over 90 days.

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

Black Oak Emerging  vs.  Rational Defensive Growth

Black Oak Emerging

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Black Oak Emerging are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Black Oak may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Rational Defensive Growth

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rational Defensive Growth are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Rational Defensive showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Black Oak and Rational Defensive

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

The idea behind Black Oak Emerging and Rational Defensive Growth 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.