Correlation Between Quantitative and Longshort Portfolio

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

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

Diversification Opportunities for Quantitative and Longshort Portfolio

0.8

Correlation Coefficient

Quantitative  Longshort Portfolio

Very poor diversification

The 3 months correlation between Quantitative and Longshort is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Quantitative U S and Longshort Portfolio Longshort in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Longshort Portfolio and Quantitative 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 Quantitative U S are associated (or correlated) with Longshort Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Longshort Portfolio has no effect on the direction of Quantitative i.e., Quantitative and Longshort Portfolio go up and down completely randomly.

Pair Corralation between Quantitative and Longshort Portfolio

Assuming the 90 days horizon Quantitative U S is expected to under-perform the Longshort Portfolio. In addition to that, Quantitative is 1.32 times more volatile than Longshort Portfolio Longshort. It trades about -0.32 of its total potential returns per unit of risk. Longshort Portfolio Longshort is currently generating about -0.21 per unit of volatility. If you would invest  1,460  in Longshort Portfolio Longshort on September 29, 2024 and sell it today you would lose (118.00) from holding Longshort Portfolio Longshort or give up 8.08% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.24%
Values	Daily Returns

Quantitative U S  vs.  Longshort Portfolio Longshort

Quantitative U S

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Quantitative U S has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Longshort Portfolio

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Quantitative and Longshort Portfolio

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

The idea behind Quantitative U S and Longshort Portfolio Longshort 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.