Correlation Between Embark Small and Balanced Fund

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

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

Diversification Opportunities for Embark Small and Balanced Fund

0.94

Correlation Coefficient

Embark Small  Balanced Fund

Almost no diversification

The 3 months correlation between Embark and Balanced is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Embark Small Cap and Balanced Fund Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Balanced Fund Investor and Embark Small 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 Embark Small Cap are associated (or correlated) with Balanced Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Balanced Fund Investor has no effect on the direction of Embark Small i.e., Embark Small and Balanced Fund go up and down completely randomly.

Pair Corralation between Embark Small and Balanced Fund

Assuming the 90 days horizon Embark Small Cap is expected to under-perform the Balanced Fund. In addition to that, Embark Small is 1.86 times more volatile than Balanced Fund Investor. It trades about -0.12 of its total potential returns per unit of risk. Balanced Fund Investor is currently generating about -0.09 per unit of volatility. If you would invest  1,988  in Balanced Fund Investor on December 23, 2024 and sell it today you would lose (69.00) from holding Balanced Fund Investor or give up 3.47% of portfolio value over 90 days.

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

Embark Small Cap  vs.  Balanced Fund Investor

Embark Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Embark Small Cap 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.

Balanced Fund Investor

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Embark Small and Balanced Fund

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

The idea behind Embark Small Cap and Balanced Fund Investor 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.