Correlation Between Quantitative and Responsible Esg

Can any of the company-specific risk be diversified away by investing in both Quantitative and Responsible Esg 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 Responsible Esg 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 Responsible Esg Equity, you can compare the effects of market volatilities on Quantitative and Responsible Esg 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 Responsible Esg. Check out your portfolio center. Please also check ongoing floating volatility patterns of Quantitative and Responsible Esg.

Diversification Opportunities for Quantitative and Responsible Esg

0.92

Correlation Coefficient

Quantitative  Responsible Esg

Almost no diversification

The 3 months correlation between Quantitative and Responsible is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Quantitative U S and Responsible Esg Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Responsible Esg Equity 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 Responsible Esg. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Responsible Esg Equity has no effect on the direction of Quantitative i.e., Quantitative and Responsible Esg go up and down completely randomly.

Pair Corralation between Quantitative and Responsible Esg

Assuming the 90 days horizon Quantitative U S is expected to under-perform the Responsible Esg. But the mutual fund apears to be less risky and, when comparing its historical volatility, Quantitative U S is 1.02 times less risky than Responsible Esg. The mutual fund trades about -0.32 of its potential returns per unit of risk. The Responsible Esg Equity is currently generating about -0.27 of returns per unit of risk over similar time horizon. If you would invest  1,867  in Responsible Esg Equity on September 29, 2024 and sell it today you would lose (254.00) from holding Responsible Esg Equity or give up 13.6% of portfolio value over 90 days.

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

Quantitative U S  vs.  Responsible Esg Equity

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.

Responsible Esg Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Responsible Esg Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Quantitative and Responsible Esg

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

The idea behind Quantitative U S and Responsible Esg Equity 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.