Correlation Between Quantitative and The Short

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

By analyzing existing cross correlation between Quantitative Longshort Equity and The Short Term, you can compare the effects of market volatilities on Quantitative and The Short 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 The Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Quantitative and The Short.

Diversification Opportunities for Quantitative and The Short

0.51

Correlation Coefficient

Quantitative  The Short

Very weak diversification

The 3 months correlation between Quantitative and The is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Quantitative Longshort Equity and The Short Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Term 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 Longshort Equity are associated (or correlated) with The Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Term has no effect on the direction of Quantitative i.e., Quantitative and The Short go up and down completely randomly.

Pair Corralation between Quantitative and The Short

Assuming the 90 days horizon Quantitative Longshort Equity is expected to under-perform the The Short. In addition to that, Quantitative is 10.8 times more volatile than The Short Term. It trades about -0.11 of its total potential returns per unit of risk. The Short Term is currently generating about 0.1 per unit of volatility. If you would invest  1,605  in The Short Term on November 29, 2024 and sell it today you would earn a total of  10.00  from holding The Short Term or generate 0.62% return on investment over 90 days.

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

Quantitative Longshort Equity  vs.  The Short Term

Quantitative Longshort

Risk-Adjusted Performance

Very Weak

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

Short Term

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Short Term are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, The Short 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 The Short

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

The idea behind Quantitative Longshort Equity and The Short Term 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.