Correlation Between Rational Defensive and Nationwide Government

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

Diversification Opportunities for Rational Defensive and Nationwide Government

0.94

Correlation Coefficient

Rational Defensive  Nationwide Government

Almost no diversification

The 3 months correlation between Rational and Nationwide is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Rational Defensive Growth and Nationwide Government Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nationwide Government 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 Nationwide Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nationwide Government has no effect on the direction of Rational Defensive i.e., Rational Defensive and Nationwide Government go up and down completely randomly.

Pair Corralation between Rational Defensive and Nationwide Government

Assuming the 90 days horizon Rational Defensive Growth is expected to generate 14.4 times more return on investment than Nationwide Government. However, Rational Defensive is 14.4 times more volatile than Nationwide Government Bond. It trades about 0.4 of its potential returns per unit of risk. Nationwide Government Bond is currently generating about 0.37 per unit of risk. If you would invest  3,928  in Rational Defensive Growth on September 15, 2024 and sell it today you would earn a total of  233.00  from holding Rational Defensive Growth or generate 5.93% return on investment over 90 days.

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

Rational Defensive Growth  vs.  Nationwide Government Bond

Rational Defensive Growth

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rational Defensive Growth are ranked lower than 20 (%) 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.

Nationwide Government

Risk-Adjusted Performance

34 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Nationwide Government Bond are ranked lower than 34 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Nationwide Government 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 Nationwide Government

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

The idea behind Rational Defensive Growth and Nationwide Government Bond 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.