Correlation Between Equity Income and Quantitative

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

By analyzing existing cross correlation between Equity Income Portfolio and Quantitative U S, you can compare the effects of market volatilities on Equity Income and Quantitative 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 Equity Income with a short position of Quantitative. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equity Income and Quantitative.

Diversification Opportunities for Equity Income and Quantitative

0.95

Correlation Coefficient

Equity Income  Quantitative

Almost no diversification

The 3 months correlation between Equity and Quantitative is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Equity Income Portfolio and Quantitative U S in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quantitative U S and Equity Income 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 Equity Income Portfolio are associated (or correlated) with Quantitative. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quantitative U S has no effect on the direction of Equity Income i.e., Equity Income and Quantitative go up and down completely randomly.

Pair Corralation between Equity Income and Quantitative

Assuming the 90 days horizon Equity Income Portfolio is expected to generate 0.88 times more return on investment than Quantitative. However, Equity Income Portfolio is 1.14 times less risky than Quantitative. It trades about 0.19 of its potential returns per unit of risk. Quantitative U S is currently generating about 0.15 per unit of risk. If you would invest  1,574  in Equity Income Portfolio on August 31, 2024 and sell it today you would earn a total of  119.00  from holding Equity Income Portfolio or generate 7.56% return on investment over 90 days.

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

Equity Income Portfolio  vs.  Quantitative U S

Equity Income Portfolio

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Equity Income Portfolio are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Equity Income may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Quantitative U S

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Quantitative U S are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Quantitative may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Equity Income and Quantitative

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

The idea behind Equity Income Portfolio and Quantitative U S 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.