Correlation Between Kensington Defender and Sarofim Equity

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

By analyzing existing cross correlation between Kensington Defender Institutional and Sarofim Equity, you can compare the effects of market volatilities on Kensington Defender and Sarofim 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 Kensington Defender with a short position of Sarofim Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kensington Defender and Sarofim Equity.

Diversification Opportunities for Kensington Defender and Sarofim Equity

0.49

Correlation Coefficient

Kensington Defender  Sarofim Equity

Very weak diversification

The 3 months correlation between Kensington and Sarofim is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Kensington Defender Institutio and Sarofim Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sarofim Equity and Kensington Defender 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 Kensington Defender Institutional are associated (or correlated) with Sarofim Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sarofim Equity has no effect on the direction of Kensington Defender i.e., Kensington Defender and Sarofim Equity go up and down completely randomly.

Pair Corralation between Kensington Defender and Sarofim Equity

Assuming the 90 days horizon Kensington Defender Institutional is expected to generate 0.73 times more return on investment than Sarofim Equity. However, Kensington Defender Institutional is 1.38 times less risky than Sarofim Equity. It trades about 0.03 of its potential returns per unit of risk. Sarofim Equity is currently generating about -0.03 per unit of risk. If you would invest  995.00  in Kensington Defender Institutional on December 28, 2024 and sell it today you would earn a total of  12.00  from holding Kensington Defender Institutional or generate 1.21% return on investment over 90 days.

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

Kensington Defender Institutio  vs.  Sarofim Equity

Kensington Defender

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Kensington Defender Institutional are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Kensington Defender is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Sarofim Equity

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Kensington Defender and Sarofim Equity

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

The idea behind Kensington Defender Institutional and Sarofim Equity 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.