Correlation Between Total Market and Quantitative

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

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

Diversification Opportunities for Total Market and Quantitative

0.95

Correlation Coefficient

Total Market  Quantitative

Almost no diversification

The 3 months correlation between Total and Quantitative is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Total Market Portfolio and Quantitative U S in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quantitative U S and Total Market 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 Total Market Portfolio are associated (or correlated) with Quantitative. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quantitative U S has no effect on the direction of Total Market i.e., Total Market and Quantitative go up and down completely randomly.

Pair Corralation between Total Market and Quantitative

Assuming the 90 days horizon Total Market Portfolio is expected to generate 0.72 times more return on investment than Quantitative. However, Total Market Portfolio is 1.4 times less risky than Quantitative. It trades about 0.18 of its potential returns per unit of risk. Quantitative U S is currently generating about 0.11 per unit of risk. If you would invest  1,973  in Total Market Portfolio on August 31, 2024 and sell it today you would earn a total of  209.00  from holding Total Market Portfolio or generate 10.59% return on investment over 90 days.

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

Total Market Portfolio  vs.  Quantitative U S

Total Market Portfolio

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Total Market Portfolio are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak primary indicators, Total Market may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Quantitative U S

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Quantitative U S are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Quantitative may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Total Market and Quantitative

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

The idea behind Total Market Portfolio and Quantitative U S 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.