Correlation Between Fabxx and Sierra Tactical

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

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

Diversification Opportunities for Fabxx and Sierra Tactical

-0.13

Correlation Coefficient

Fabxx  Sierra Tactical

Good diversification

The 3 months correlation between Fabxx and Sierra is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Fabxx and Sierra Tactical Risk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sierra Tactical Risk and Fabxx 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 Fabxx are associated (or correlated) with Sierra Tactical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sierra Tactical Risk has no effect on the direction of Fabxx i.e., Fabxx and Sierra Tactical go up and down completely randomly.

Pair Corralation between Fabxx and Sierra Tactical

Assuming the 90 days horizon Fabxx is expected to under-perform the Sierra Tactical. In addition to that, Fabxx is 30.22 times more volatile than Sierra Tactical Risk. It trades about -0.03 of its total potential returns per unit of risk. Sierra Tactical Risk is currently generating about -0.01 per unit of volatility. If you would invest  2,394  in Sierra Tactical Risk on December 29, 2024 and sell it today you would lose (11.00) from holding Sierra Tactical Risk or give up 0.46% of portfolio value over 90 days.

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

Fabxx  vs.  Sierra Tactical Risk

Fabxx

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fabxx has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Sierra Tactical Risk

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Fabxx and Sierra Tactical

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

The idea behind Fabxx and Sierra Tactical Risk 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 Transaction History module to view history of all your transactions and understand their impact on performance.