Correlation Between Multimanager Lifestyle and Financial Industries

Can any of the company-specific risk be diversified away by investing in both Multimanager Lifestyle and Financial Industries 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 Multimanager Lifestyle and Financial Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Multimanager Lifestyle Growth and Financial Industries Fund, you can compare the effects of market volatilities on Multimanager Lifestyle and Financial Industries 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 Multimanager Lifestyle with a short position of Financial Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Multimanager Lifestyle and Financial Industries.

Diversification Opportunities for Multimanager Lifestyle and Financial Industries

0.85

Correlation Coefficient

Multimanager Lifestyle  Financial Industries

Very poor diversification

The 3 months correlation between Multimanager and Financial is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Multimanager Lifestyle Growth and Financial Industries Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Industries and Multimanager Lifestyle 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 Multimanager Lifestyle Growth are associated (or correlated) with Financial Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Industries has no effect on the direction of Multimanager Lifestyle i.e., Multimanager Lifestyle and Financial Industries go up and down completely randomly.

Pair Corralation between Multimanager Lifestyle and Financial Industries

Assuming the 90 days horizon Multimanager Lifestyle is expected to generate 1.69 times less return on investment than Financial Industries. But when comparing it to its historical volatility, Multimanager Lifestyle Growth is 2.05 times less risky than Financial Industries. It trades about 0.06 of its potential returns per unit of risk. Financial Industries Fund is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,758  in Financial Industries Fund on October 25, 2024 and sell it today you would earn a total of  136.00  from holding Financial Industries Fund or generate 7.74% return on investment over 90 days.

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

Multimanager Lifestyle Growth  vs.  Financial Industries Fund

Multimanager Lifestyle

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Multimanager Lifestyle Growth are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Multimanager Lifestyle is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Financial Industries

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Industries Fund are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Financial Industries is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Multimanager Lifestyle and Financial Industries

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

The idea behind Multimanager Lifestyle Growth and Financial Industries 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.