Correlation Between Fulcrum Diversified and Value Equity

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

By analyzing existing cross correlation between Fulcrum Diversified Absolute and Value Equity Investor, you can compare the effects of market volatilities on Fulcrum Diversified and Value 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 Fulcrum Diversified with a short position of Value Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fulcrum Diversified and Value Equity.

Diversification Opportunities for Fulcrum Diversified and Value Equity

0.84

Correlation Coefficient

Fulcrum Diversified  Value Equity

Very poor diversification

The 3 months correlation between Fulcrum and Value is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Fulcrum Diversified Absolute and Value Equity Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Value Equity Investor and Fulcrum Diversified 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 Fulcrum Diversified Absolute are associated (or correlated) with Value Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Value Equity Investor has no effect on the direction of Fulcrum Diversified i.e., Fulcrum Diversified and Value Equity go up and down completely randomly.

Pair Corralation between Fulcrum Diversified and Value Equity

Assuming the 90 days horizon Fulcrum Diversified Absolute is expected to under-perform the Value Equity. But the mutual fund apears to be less risky and, when comparing its historical volatility, Fulcrum Diversified Absolute is 2.24 times less risky than Value Equity. The mutual fund trades about -0.01 of its potential returns per unit of risk. The Value Equity Investor is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,882  in Value Equity Investor on December 21, 2024 and sell it today you would earn a total of  23.00  from holding Value Equity Investor or generate 1.22% return on investment over 90 days.

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

Fulcrum Diversified Absolute  vs.  Value Equity Investor

Fulcrum Diversified

Risk-Adjusted Performance

Very Weak

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

Value Equity Investor

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Value Equity Investor are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Value 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 Fulcrum Diversified and Value Equity

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

The idea behind Fulcrum Diversified Absolute and Value Equity 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.