Correlation Between The National and Ariel Focus

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

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

Diversification Opportunities for The National and Ariel Focus

0.4

Correlation Coefficient

The National  Ariel Focus

Very weak diversification

The 3 months correlation between The and ARIEL is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding The National Tax Free 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 The National 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 National Tax Free 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 The National i.e., The National and Ariel Focus go up and down completely randomly.

Pair Corralation between The National and Ariel Focus

Assuming the 90 days horizon The National is expected to generate 4.46 times less return on investment than Ariel Focus. But when comparing it to its historical volatility, The National Tax Free is 5.55 times less risky than Ariel Focus. It trades about 0.05 of its potential returns per unit of risk. Ariel Focus Fund is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,484  in Ariel Focus Fund on December 2, 2024 and sell it today you would earn a total of  137.00  from holding Ariel Focus Fund or generate 9.23% return on investment over 90 days.

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

The National Tax Free  vs.  Ariel Focus Fund

National Tax

Risk-Adjusted Performance

Very Weak

Over the last 90 days The National Tax Free has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, The National 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 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.

Pair Trading with The National and Ariel Focus

The main advantage of trading using opposite The National and Ariel Focus positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if The National 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 The National Tax Free 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.

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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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.