Correlation Between Long Term and Plumb Equity

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

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

Diversification Opportunities for Long Term and Plumb Equity

0.73

Correlation Coefficient

Long Term  Plumb Equity

Poor diversification

The 3 months correlation between Long and Plumb is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding The Long Term and Plumb Equity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plumb Equity and Long Term 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 The Long Term are associated (or correlated) with Plumb Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plumb Equity has no effect on the direction of Long Term i.e., Long Term and Plumb Equity go up and down completely randomly.

Pair Corralation between Long Term and Plumb Equity

Assuming the 90 days horizon The Long Term is expected to generate 1.29 times more return on investment than Plumb Equity. However, Long Term is 1.29 times more volatile than Plumb Equity Fund. It trades about -0.01 of its potential returns per unit of risk. Plumb Equity Fund is currently generating about -0.08 per unit of risk. If you would invest  3,415  in The Long Term on December 25, 2024 and sell it today you would lose (75.00) from holding The Long Term or give up 2.2% of portfolio value over 90 days.

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

The Long Term  vs.  Plumb Equity Fund

Long Term

Risk-Adjusted Performance

Very Weak

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

Plumb Equity

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Long Term and Plumb Equity

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

The idea behind The Long Term and Plumb Equity 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.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.