Correlation Between Value Equity and Strategic Alternatives

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

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

Diversification Opportunities for Value Equity and Strategic Alternatives

0.94

Correlation Coefficient

Value Equity  Strategic Alternatives

Almost no diversification

The 3 months correlation between Value and Strategic is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Value Equity Investor and Strategic Alternatives Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Strategic Alternatives and Value Equity 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 Value Equity Investor are associated (or correlated) with Strategic Alternatives. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Strategic Alternatives has no effect on the direction of Value Equity i.e., Value Equity and Strategic Alternatives go up and down completely randomly.

Pair Corralation between Value Equity and Strategic Alternatives

Assuming the 90 days horizon Value Equity Investor is expected to under-perform the Strategic Alternatives. In addition to that, Value Equity is 2.23 times more volatile than Strategic Alternatives Fund. It trades about -0.05 of its total potential returns per unit of risk. Strategic Alternatives Fund is currently generating about -0.07 per unit of volatility. If you would invest  976.00  in Strategic Alternatives Fund on September 16, 2024 and sell it today you would lose (27.00) from holding Strategic Alternatives Fund or give up 2.77% of portfolio value over 90 days.

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

Value Equity Investor  vs.  Strategic Alternatives Fund

Value Equity Investor

Risk-Adjusted Performance

0 of 100

Very Weak

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

Strategic Alternatives

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Value Equity and Strategic Alternatives

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

The idea behind Value Equity Investor and Strategic Alternatives Fund 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.