Correlation Between Rational Dividend and Rational Defensive

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

By analyzing existing cross correlation between Rational Dividend Capture and Rational Defensive Growth, you can compare the effects of market volatilities on Rational Dividend and Rational Defensive 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 Rational Dividend with a short position of Rational Defensive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rational Dividend and Rational Defensive.

Diversification Opportunities for Rational Dividend and Rational Defensive

0.92

Correlation Coefficient

Rational Dividend  Rational Defensive

Almost no diversification

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

Pair Corralation between Rational Dividend and Rational Defensive

Assuming the 90 days horizon Rational Dividend Capture is expected to generate 0.51 times more return on investment than Rational Defensive. However, Rational Dividend Capture is 1.95 times less risky than Rational Defensive. It trades about -0.06 of its potential returns per unit of risk. Rational Defensive Growth is currently generating about -0.1 per unit of risk. If you would invest  954.00  in Rational Dividend Capture on December 30, 2024 and sell it today you would lose (25.00) from holding Rational Dividend Capture or give up 2.62% of portfolio value over 90 days.

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

Rational Dividend Capture  vs.  Rational Defensive Growth

Rational Dividend Capture

Risk-Adjusted Performance

Very Weak

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

Rational Defensive Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rational Defensive Growth 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.

Pair Trading with Rational Dividend and Rational Defensive

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

The idea behind Rational Dividend Capture and Rational Defensive Growth 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.