Correlation Between Rational Real and Rational Special

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

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

Diversification Opportunities for Rational Real and Rational Special

0.94

Correlation Coefficient

Rational Real  Rational Special

Almost no diversification

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

Pair Corralation between Rational Real and Rational Special

Assuming the 90 days horizon Rational Real is expected to generate 2.48 times less return on investment than Rational Special. But when comparing it to its historical volatility, Rational Real Strategies is 1.36 times less risky than Rational Special. It trades about 0.14 of its potential returns per unit of risk. Rational Special Situations is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  1,787  in Rational Special Situations on December 30, 2024 and sell it today you would earn a total of  22.00  from holding Rational Special Situations or generate 1.23% return on investment over 90 days.

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

Rational Real Strategies  vs.  Rational Special Situations

Rational Real Strategies

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rational Real Strategies are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Rational Real is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Rational Special Sit

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rational Special Situations are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Rational Special is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Rational Real and Rational Special

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

The idea behind Rational Real Strategies and Rational Special Situations 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.