Correlation Between Strategic Alternatives and Growth Allocation

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

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

Diversification Opportunities for Strategic Alternatives and Growth Allocation

0.13

Correlation Coefficient

Strategic Alternatives  Growth Allocation

Average diversification

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

Pair Corralation between Strategic Alternatives and Growth Allocation

Assuming the 90 days horizon Strategic Alternatives Fund is expected to under-perform the Growth Allocation. In addition to that, Strategic Alternatives is 1.22 times more volatile than Growth Allocation Fund. It trades about -0.07 of its total potential returns per unit of risk. Growth Allocation Fund is currently generating about 0.07 per unit of volatility. If you would invest  1,307  in Growth Allocation Fund on September 17, 2024 and sell it today you would earn a total of  28.00  from holding Growth Allocation Fund or generate 2.14% return on investment over 90 days.

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

Strategic Alternatives Fund  vs.  Growth Allocation Fund

Strategic Alternatives

Risk-Adjusted Performance

0 of 100

Very Weak

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

Growth Allocation

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Growth Allocation Fund are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Growth Allocation is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Strategic Alternatives and Growth Allocation

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

The idea behind Strategic Alternatives Fund and Growth Allocation Fund 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.