Correlation Between The National and Kensington Active

Can any of the company-specific risk be diversified away by investing in both The National and Kensington Active 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 Kensington Active 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 Kensington Active Advantage, you can compare the effects of market volatilities on The National and Kensington Active 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 Kensington Active. Check out your portfolio center. Please also check ongoing floating volatility patterns of The National and Kensington Active.

Diversification Opportunities for The National and Kensington Active

0.23

Correlation Coefficient

The National  Kensington Active

Modest diversification

The 3 months correlation between The and Kensington is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding The National Tax Free and Kensington Active Advantage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kensington Active 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 Kensington Active. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kensington Active has no effect on the direction of The National i.e., The National and Kensington Active go up and down completely randomly.

Pair Corralation between The National and Kensington Active

Assuming the 90 days horizon The National Tax Free is expected to under-perform the Kensington Active. But the mutual fund apears to be less risky and, when comparing its historical volatility, The National Tax Free is 2.8 times less risky than Kensington Active. The mutual fund trades about -0.33 of its potential returns per unit of risk. The Kensington Active Advantage is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  1,025  in Kensington Active Advantage on October 9, 2024 and sell it today you would lose (13.00) from holding Kensington Active Advantage or give up 1.27% of portfolio value over 90 days.

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

The National Tax Free  vs.  Kensington Active Advantage

National Tax

Risk-Adjusted Performance

0 of 100

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.

Kensington Active

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Kensington Active Advantage are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Kensington Active is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with The National and Kensington Active

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

The idea behind The National Tax Free and Kensington Active Advantage 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.