Correlation Between Rational Defensive and Tributary Small/mid

Can any of the company-specific risk be diversified away by investing in both Rational Defensive and Tributary Small/mid 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 Tributary Small/mid 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 Tributary Smallmid Cap, you can compare the effects of market volatilities on Rational Defensive and Tributary Small/mid 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 Tributary Small/mid. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rational Defensive and Tributary Small/mid.

Diversification Opportunities for Rational Defensive and Tributary Small/mid

0.87

Correlation Coefficient

Rational Defensive  Tributary Small/mid

Very poor diversification

The 3 months correlation between Rational and Tributary is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Rational Defensive Growth and Tributary Smallmid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tributary Smallmid Cap 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 Tributary Small/mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tributary Smallmid Cap has no effect on the direction of Rational Defensive i.e., Rational Defensive and Tributary Small/mid go up and down completely randomly.

Pair Corralation between Rational Defensive and Tributary Small/mid

Assuming the 90 days horizon Rational Defensive Growth is expected to under-perform the Tributary Small/mid. In addition to that, Rational Defensive is 1.31 times more volatile than Tributary Smallmid Cap. It trades about -0.1 of its total potential returns per unit of risk. Tributary Smallmid Cap is currently generating about -0.13 per unit of volatility. If you would invest  1,699  in Tributary Smallmid Cap on December 30, 2024 and sell it today you would lose (134.00) from holding Tributary Smallmid Cap or give up 7.89% of portfolio value over 90 days.

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

Rational Defensive Growth  vs.  Tributary Smallmid Cap

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.

Tributary Smallmid Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tributary Smallmid Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental drivers 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 Defensive and Tributary Small/mid

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

The idea behind Rational Defensive Growth and Tributary Smallmid Cap 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.