Correlation Between Morningstar Defensive and Sentinel Multi-asset

Can any of the company-specific risk be diversified away by investing in both Morningstar Defensive and Sentinel Multi-asset 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 Sentinel Multi-asset 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 Sentinel Multi Asset Income, you can compare the effects of market volatilities on Morningstar Defensive and Sentinel Multi-asset 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 Sentinel Multi-asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Morningstar Defensive and Sentinel Multi-asset.

Diversification Opportunities for Morningstar Defensive and Sentinel Multi-asset

0.43

Correlation Coefficient

Morningstar Defensive  Sentinel Multi-asset

Very weak diversification

The 3 months correlation between Morningstar and Sentinel is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Morningstar Defensive Bond and Sentinel Multi Asset Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sentinel Multi Asset 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 Sentinel Multi-asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sentinel Multi Asset has no effect on the direction of Morningstar Defensive i.e., Morningstar Defensive and Sentinel Multi-asset go up and down completely randomly.

Pair Corralation between Morningstar Defensive and Sentinel Multi-asset

Assuming the 90 days horizon Morningstar Defensive Bond is expected to generate 0.03 times more return on investment than Sentinel Multi-asset. However, Morningstar Defensive Bond is 29.63 times less risky than Sentinel Multi-asset. It trades about -0.36 of its potential returns per unit of risk. Sentinel Multi Asset Income is currently generating about -0.32 per unit of risk. If you would invest  975.00  in Morningstar Defensive Bond on October 9, 2024 and sell it today you would lose (9.00) from holding Morningstar Defensive Bond or give up 0.92% of portfolio value over 90 days.

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

Morningstar Defensive Bond  vs.  Sentinel Multi Asset Income

Morningstar Defensive

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Morningstar Defensive Bond has generated negative risk-adjusted returns adding no value to fund investors. 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.

Sentinel Multi Asset

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sentinel Multi Asset Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Morningstar Defensive and Sentinel Multi-asset

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

The idea behind Morningstar Defensive Bond and Sentinel Multi Asset 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.