Correlation Between Multi Index and Balanced Fund

Can any of the company-specific risk be diversified away by investing in both Multi Index and Balanced Fund 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 Multi Index and Balanced Fund into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Multi Index 2015 Lifetime and Balanced Fund Class, you can compare the effects of market volatilities on Multi Index and Balanced Fund 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 Multi Index with a short position of Balanced Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Multi Index and Balanced Fund.

Diversification Opportunities for Multi Index and Balanced Fund

0.76

Correlation Coefficient

Multi Index  Balanced Fund

Poor diversification

The 3 months correlation between Multi and Balanced is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Multi Index 2015 Lifetime and Balanced Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Balanced Fund Class and Multi Index 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 Multi Index 2015 Lifetime are associated (or correlated) with Balanced Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Balanced Fund Class has no effect on the direction of Multi Index i.e., Multi Index and Balanced Fund go up and down completely randomly.

Pair Corralation between Multi Index and Balanced Fund

Assuming the 90 days horizon Multi Index is expected to generate 5.23 times less return on investment than Balanced Fund. But when comparing it to its historical volatility, Multi Index 2015 Lifetime is 1.71 times less risky than Balanced Fund. It trades about 0.02 of its potential returns per unit of risk. Balanced Fund Class is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,888  in Balanced Fund Class on October 24, 2024 and sell it today you would earn a total of  76.00  from holding Balanced Fund Class or generate 2.63% return on investment over 90 days.

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

Multi Index 2015 Lifetime  vs.  Balanced Fund Class

Multi Index 2015

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Multi Index 2015 Lifetime are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward-looking signals, Multi Index is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Balanced Fund Class

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Balanced Fund Class are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Balanced Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Multi Index and Balanced Fund

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

The idea behind Multi Index 2015 Lifetime and Balanced Fund Class 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.