Correlation Between Rational Defensive and Small-midcap Dividend

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

Diversification Opportunities for Rational Defensive and Small-midcap Dividend

0.93

Correlation Coefficient

Rational Defensive  Small-midcap Dividend

Almost no diversification

The 3 months correlation between Rational and Small-midcap is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Rational Defensive Growth and Small Midcap Dividend Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Midcap Dividend 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 Small-midcap Dividend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Midcap Dividend has no effect on the direction of Rational Defensive i.e., Rational Defensive and Small-midcap Dividend go up and down completely randomly.

Pair Corralation between Rational Defensive and Small-midcap Dividend

Assuming the 90 days horizon Rational Defensive Growth is expected to generate 0.95 times more return on investment than Small-midcap Dividend. However, Rational Defensive Growth is 1.05 times less risky than Small-midcap Dividend. It trades about 0.24 of its potential returns per unit of risk. Small Midcap Dividend Income is currently generating about 0.17 per unit of risk. If you would invest  3,530  in Rational Defensive Growth on September 2, 2024 and sell it today you would earn a total of  512.00  from holding Rational Defensive Growth or generate 14.5% 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.  Small Midcap Dividend Income

Rational Defensive Growth

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rational Defensive Growth are ranked lower than 18 (%) 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.

Small Midcap Dividend

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Small Midcap Dividend Income are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Small-midcap Dividend may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Rational Defensive and Small-midcap Dividend

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

The idea behind Rational Defensive Growth and Small Midcap Dividend Income 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.