Correlation Between Rational Defensive and Rational Inflation

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

Diversification Opportunities for Rational Defensive and Rational Inflation

0.88

Correlation Coefficient

Rational Defensive  Rational Inflation

Very poor diversification

The 3 months correlation between Rational and Rational is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Rational Defensive Growth and Rational Inflation Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rational Inflation Growth 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 Rational Inflation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rational Inflation Growth has no effect on the direction of Rational Defensive i.e., Rational Defensive and Rational Inflation go up and down completely randomly.

Pair Corralation between Rational Defensive and Rational Inflation

If you would invest  3,934  in Rational Defensive Growth on October 11, 2024 and sell it today you would earn a total of  51.00  from holding Rational Defensive Growth or generate 1.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	5.0%
Values	Daily Returns

Rational Defensive Growth  vs.  Rational Inflation Growth

Rational Defensive Growth

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rational Defensive Growth are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. 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.

Rational Inflation Growth

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Rational Inflation Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Rational Inflation 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 Rational Inflation

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

The idea behind Rational Defensive Growth and Rational Inflation 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 CEOs Directory module to screen CEOs from public companies around the world.