Correlation Between Secured Options and Strategic Equity

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

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

Diversification Opportunities for Secured Options and Strategic Equity

0.96

Correlation Coefficient

Secured Options  Strategic Equity

Almost no diversification

The 3 months correlation between Secured and Strategic is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Secured Options Portfolio and Strategic Equity Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Strategic Equity Por and Secured Options 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 Secured Options Portfolio are associated (or correlated) with Strategic Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Strategic Equity Por has no effect on the direction of Secured Options i.e., Secured Options and Strategic Equity go up and down completely randomly.

Pair Corralation between Secured Options and Strategic Equity

Assuming the 90 days horizon Secured Options is expected to generate 1.85 times less return on investment than Strategic Equity. But when comparing it to its historical volatility, Secured Options Portfolio is 3.72 times less risky than Strategic Equity. It trades about 0.57 of its potential returns per unit of risk. Strategic Equity Portfolio is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  2,994  in Strategic Equity Portfolio on September 5, 2024 and sell it today you would earn a total of  157.00  from holding Strategic Equity Portfolio or generate 5.24% return on investment over 90 days.

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

Secured Options Portfolio  vs.  Strategic Equity Portfolio

Secured Options Portfolio

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Secured Options Portfolio are ranked lower than 27 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Secured Options is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Strategic Equity Por

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Strategic Equity Portfolio are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Strategic Equity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Secured Options and Strategic Equity

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

The idea behind Secured Options Portfolio and Strategic Equity Portfolio 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.