Correlation Between Salient Tactical and Salient Select

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

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

Diversification Opportunities for Salient Tactical and Salient Select

0.05

Correlation Coefficient

Salient Tactical  Salient Select

Significant diversification

The 3 months correlation between Salient and Salient is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Salient Tactical Growth and Salient Select Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Salient Select Income and Salient Tactical 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 Salient Tactical Growth are associated (or correlated) with Salient Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Salient Select Income has no effect on the direction of Salient Tactical i.e., Salient Tactical and Salient Select go up and down completely randomly.

Pair Corralation between Salient Tactical and Salient Select

Assuming the 90 days horizon Salient Tactical Growth is expected to under-perform the Salient Select. But the mutual fund apears to be less risky and, when comparing its historical volatility, Salient Tactical Growth is 1.61 times less risky than Salient Select. The mutual fund trades about -0.03 of its potential returns per unit of risk. The Salient Select Income is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,775  in Salient Select Income on December 30, 2024 and sell it today you would lose (4.00) from holding Salient Select Income or give up 0.23% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	46.77%
Values	Daily Returns

Salient Tactical Growth  vs.  Salient Select Income

Salient Tactical Growth

Risk-Adjusted Performance

Very Weak

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

Salient Select Income

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Salient Tactical and Salient Select

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

The idea behind Salient Tactical Growth and Salient Select Income 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..