Correlation Between Boston Partners and Applied Finance

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

By analyzing existing cross correlation between Boston Partners Longshort and Applied Finance Select, you can compare the effects of market volatilities on Boston Partners and Applied Finance 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 Boston Partners with a short position of Applied Finance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Boston Partners and Applied Finance.

Diversification Opportunities for Boston Partners and Applied Finance

0.66

Correlation Coefficient

Boston Partners  Applied Finance

Poor diversification

The 3 months correlation between Boston and Applied is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Boston Partners Longshort and Applied Finance Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Finance Select and Boston Partners 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 Boston Partners Longshort are associated (or correlated) with Applied Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Finance Select has no effect on the direction of Boston Partners i.e., Boston Partners and Applied Finance go up and down completely randomly.

Pair Corralation between Boston Partners and Applied Finance

Assuming the 90 days horizon Boston Partners Longshort is expected to under-perform the Applied Finance. In addition to that, Boston Partners is 3.67 times more volatile than Applied Finance Select. It trades about -0.23 of its total potential returns per unit of risk. Applied Finance Select is currently generating about -0.11 per unit of volatility. If you would invest  2,328  in Applied Finance Select on September 15, 2024 and sell it today you would lose (32.00) from holding Applied Finance Select or give up 1.37% of portfolio value over 90 days.

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

Boston Partners Longshort  vs.  Applied Finance Select

Boston Partners Longshort

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Boston Partners Longshort has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Applied Finance Select

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Applied Finance Select are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Applied Finance is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Boston Partners and Applied Finance

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

The idea behind Boston Partners Longshort and Applied Finance Select 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 Global Correlations module to find global opportunities by holding instruments from different markets.