Correlation Between Rational Defensive and Medium Duration

Can any of the company-specific risk be diversified away by investing in both Rational Defensive and Medium Duration 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 Medium Duration 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 Medium Duration Bond Institutional, you can compare the effects of market volatilities on Rational Defensive and Medium Duration 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 Medium Duration. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rational Defensive and Medium Duration.

Diversification Opportunities for Rational Defensive and Medium Duration

-0.62

Correlation Coefficient

Rational Defensive  Medium Duration

Excellent diversification

The 3 months correlation between Rational and Medium is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Rational Defensive Growth and Medium Duration Bond Instituti in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medium Duration Bond 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 Medium Duration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medium Duration Bond has no effect on the direction of Rational Defensive i.e., Rational Defensive and Medium Duration go up and down completely randomly.

Pair Corralation between Rational Defensive and Medium Duration

Assuming the 90 days horizon Rational Defensive Growth is expected to generate 2.84 times more return on investment than Medium Duration. However, Rational Defensive is 2.84 times more volatile than Medium Duration Bond Institutional. It trades about 0.24 of its potential returns per unit of risk. Medium Duration Bond Institutional is currently generating about -0.18 per unit of risk. If you would invest  3,630  in Rational Defensive Growth on September 18, 2024 and sell it today you would earn a total of  509.00  from holding Rational Defensive Growth or generate 14.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Rational Defensive Growth  vs.  Medium Duration Bond Instituti

Rational Defensive Growth

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rational Defensive Growth are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Rational Defensive showed solid returns over the last few months and may actually be approaching a breakup point.

Medium Duration Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Medium Duration Bond Institutional has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Medium Duration 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 Medium Duration

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

The idea behind Rational Defensive Growth and Medium Duration Bond Institutional 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.