Correlation Between Rational Defensive and Global Equity

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

Diversification Opportunities for Rational Defensive and Global Equity

0.07

Correlation Coefficient

Rational Defensive  Global Equity

Significant diversification

The 3 months correlation between Rational and Global is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Rational Defensive Growth and Global Equity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Equity 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 Global Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Equity has no effect on the direction of Rational Defensive i.e., Rational Defensive and Global Equity go up and down completely randomly.

Pair Corralation between Rational Defensive and Global Equity

Assuming the 90 days horizon Rational Defensive Growth is expected to generate 0.49 times more return on investment than Global Equity. However, Rational Defensive Growth is 2.05 times less risky than Global Equity. It trades about 0.06 of its potential returns per unit of risk. Global Equity Fund is currently generating about -0.21 per unit of risk. If you would invest  3,920  in Rational Defensive Growth on October 7, 2024 and sell it today you would earn a total of  74.00  from holding Rational Defensive Growth or generate 1.89% return on investment over 90 days.

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

Rational Defensive Growth  vs.  Global Equity Fund

Rational Defensive Growth

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rational Defensive Growth are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Rational Defensive may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Global Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global Equity Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's technical and fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Rational Defensive and Global Equity

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

The idea behind Rational Defensive Growth and Global Equity 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..