Correlation Between Morningstar Defensive and Harding Loevner

Can any of the company-specific risk be diversified away by investing in both Morningstar Defensive and Harding Loevner 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 Morningstar Defensive and Harding Loevner into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Morningstar Defensive Bond and Harding Loevner International, you can compare the effects of market volatilities on Morningstar Defensive and Harding Loevner 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 Morningstar Defensive with a short position of Harding Loevner. Check out your portfolio center. Please also check ongoing floating volatility patterns of Morningstar Defensive and Harding Loevner.

Diversification Opportunities for Morningstar Defensive and Harding Loevner

0.67

Correlation Coefficient

Morningstar Defensive  Harding Loevner

Poor diversification

The 3 months correlation between Morningstar and Harding is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Morningstar Defensive Bond and Harding Loevner International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Harding Loevner Inte and Morningstar 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 Morningstar Defensive Bond are associated (or correlated) with Harding Loevner. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Harding Loevner Inte has no effect on the direction of Morningstar Defensive i.e., Morningstar Defensive and Harding Loevner go up and down completely randomly.

Pair Corralation between Morningstar Defensive and Harding Loevner

Assuming the 90 days horizon Morningstar Defensive Bond is expected to generate 0.17 times more return on investment than Harding Loevner. However, Morningstar Defensive Bond is 6.06 times less risky than Harding Loevner. It trades about 0.15 of its potential returns per unit of risk. Harding Loevner International is currently generating about -0.01 per unit of risk. If you would invest  966.00  in Morningstar Defensive Bond on December 2, 2024 and sell it today you would earn a total of  12.00  from holding Morningstar Defensive Bond or generate 1.24% return on investment over 90 days.

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

Morningstar Defensive Bond  vs.  Harding Loevner International

Morningstar Defensive

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Morningstar Defensive Bond are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Morningstar Defensive is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Harding Loevner Inte

Risk-Adjusted Performance

Very Weak

Over the last 90 days Harding Loevner International has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Harding Loevner is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Morningstar Defensive and Harding Loevner

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

The idea behind Morningstar Defensive Bond and Harding Loevner International 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.