Correlation Between Ariel Appreciation and Ariel Focus

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

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

Diversification Opportunities for Ariel Appreciation and Ariel Focus

0.97

Correlation Coefficient

Ariel Appreciation  Ariel Focus

Almost no diversification

The 3 months correlation between Ariel and Ariel is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Ariel Appreciation Fund and Ariel Focus Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ariel Focus Fund and Ariel Appreciation 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 Ariel Appreciation Fund are associated (or correlated) with Ariel Focus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ariel Focus Fund has no effect on the direction of Ariel Appreciation i.e., Ariel Appreciation and Ariel Focus go up and down completely randomly.

Pair Corralation between Ariel Appreciation and Ariel Focus

Assuming the 90 days horizon Ariel Appreciation Fund is expected to under-perform the Ariel Focus. In addition to that, Ariel Appreciation is 1.11 times more volatile than Ariel Focus Fund. It trades about -0.07 of its total potential returns per unit of risk. Ariel Focus Fund is currently generating about -0.03 per unit of volatility. If you would invest  1,620  in Ariel Focus Fund on December 28, 2024 and sell it today you would lose (35.00) from holding Ariel Focus Fund or give up 2.16% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.36%
Values	Daily Returns

Ariel Appreciation Fund  vs.  Ariel Focus Fund

Ariel Appreciation

Risk-Adjusted Performance

Very Weak

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

Ariel Focus Fund

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Ariel Appreciation and Ariel Focus

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

The idea behind Ariel Appreciation Fund and Ariel Focus 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.