Correlation Between Aggressive Investors and Managed Volatility

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

By analyzing existing cross correlation between Aggressive Investors 1 and Managed Volatility Fund, you can compare the effects of market volatilities on Aggressive Investors and Managed Volatility 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 Aggressive Investors with a short position of Managed Volatility. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aggressive Investors and Managed Volatility.

Diversification Opportunities for Aggressive Investors and Managed Volatility

-0.11

Correlation Coefficient

Aggressive Investors  Managed Volatility

Good diversification

The 3 months correlation between Aggressive and Managed is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Aggressive Investors 1 and Managed Volatility Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Managed Volatility and Aggressive Investors 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 Aggressive Investors 1 are associated (or correlated) with Managed Volatility. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Managed Volatility has no effect on the direction of Aggressive Investors i.e., Aggressive Investors and Managed Volatility go up and down completely randomly.

Pair Corralation between Aggressive Investors and Managed Volatility

Assuming the 90 days horizon Aggressive Investors 1 is expected to generate 27.69 times more return on investment than Managed Volatility. However, Aggressive Investors is 27.69 times more volatile than Managed Volatility Fund. It trades about 0.39 of its potential returns per unit of risk. Managed Volatility Fund is currently generating about 0.38 per unit of risk. If you would invest  8,521  in Aggressive Investors 1 on September 5, 2024 and sell it today you would earn a total of  1,961  from holding Aggressive Investors 1 or generate 23.01% return on investment over 90 days.

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

Aggressive Investors 1  vs.  Managed Volatility Fund

Aggressive Investors

Risk-Adjusted Performance

30 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Aggressive Investors 1 are ranked lower than 30 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Aggressive Investors showed solid returns over the last few months and may actually be approaching a breakup point.

Managed Volatility

Risk-Adjusted Performance

29 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Managed Volatility Fund are ranked lower than 29 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Managed Volatility is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Aggressive Investors and Managed Volatility

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

The idea behind Aggressive Investors 1 and Managed Volatility 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..