Correlation Between Rational Defensive and Auer Growth

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

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

Diversification Opportunities for Rational Defensive and Auer Growth

0.7

Correlation Coefficient

Rational Defensive  Auer Growth

Poor diversification

The 3 months correlation between Rational and Auer is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Rational Defensive Growth and Auer Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Auer Growth Fund and Rational Defensive 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 Defensive Growth are associated (or correlated) with Auer Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Auer Growth Fund has no effect on the direction of Rational Defensive i.e., Rational Defensive and Auer Growth go up and down completely randomly.

Pair Corralation between Rational Defensive and Auer Growth

Assuming the 90 days horizon Rational Defensive Growth is expected to under-perform the Auer Growth. In addition to that, Rational Defensive is 1.19 times more volatile than Auer Growth Fund. It trades about -0.07 of its total potential returns per unit of risk. Auer Growth Fund is currently generating about -0.05 per unit of volatility. If you would invest  1,327  in Auer Growth Fund on December 28, 2024 and sell it today you would lose (49.00) from holding Auer Growth Fund or give up 3.69% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Rational Defensive Growth  vs.  Auer Growth Fund

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 fairly strong basic indicators, Rational Defensive is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Auer Growth Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days Auer Growth Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Auer Growth 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 Defensive and Auer Growth

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

The idea behind Rational Defensive Growth and Auer Growth 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.