Correlation Between Litman Gregory and Diversified Income

Can any of the company-specific risk be diversified away by investing in both Litman Gregory and Diversified Income 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 Litman Gregory and Diversified Income into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Litman Gregory Masters and Diversified Income Fund, you can compare the effects of market volatilities on Litman Gregory and Diversified Income 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 Litman Gregory with a short position of Diversified Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Litman Gregory and Diversified Income.

Diversification Opportunities for Litman Gregory and Diversified Income

0.7

Correlation Coefficient

Litman Gregory  Diversified Income

Poor diversification

The 3 months correlation between Litman and Diversified is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Litman Gregory Masters and Diversified Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diversified Income and Litman Gregory 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 Litman Gregory Masters are associated (or correlated) with Diversified Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diversified Income has no effect on the direction of Litman Gregory i.e., Litman Gregory and Diversified Income go up and down completely randomly.

Pair Corralation between Litman Gregory and Diversified Income

Assuming the 90 days horizon Litman Gregory Masters is expected to generate 0.62 times more return on investment than Diversified Income. However, Litman Gregory Masters is 1.61 times less risky than Diversified Income. It trades about 0.17 of its potential returns per unit of risk. Diversified Income Fund is currently generating about 0.09 per unit of risk. If you would invest  988.00  in Litman Gregory Masters on October 23, 2024 and sell it today you would earn a total of  5.00  from holding Litman Gregory Masters or generate 0.51% return on investment over 90 days.

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

Litman Gregory Masters  vs.  Diversified Income Fund

Litman Gregory Masters

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Litman Gregory Masters are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Litman Gregory is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Diversified Income

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Diversified Income Fund are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Diversified Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Litman Gregory and Diversified Income

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

The idea behind Litman Gregory Masters and Diversified Income 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.