Correlation Between Shelton Green and Plumb Balanced

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

By analyzing existing cross correlation between Shelton Green Alpha and Plumb Balanced, you can compare the effects of market volatilities on Shelton Green and Plumb Balanced 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 Shelton Green with a short position of Plumb Balanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shelton Green and Plumb Balanced.

Diversification Opportunities for Shelton Green and Plumb Balanced

0.83

Correlation Coefficient

Shelton Green  Plumb Balanced

Very poor diversification

The 3 months correlation between Shelton and Plumb is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Shelton Green Alpha and Plumb Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plumb Balanced and Shelton Green 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 Shelton Green Alpha are associated (or correlated) with Plumb Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plumb Balanced has no effect on the direction of Shelton Green i.e., Shelton Green and Plumb Balanced go up and down completely randomly.

Pair Corralation between Shelton Green and Plumb Balanced

Assuming the 90 days horizon Shelton Green Alpha is expected to under-perform the Plumb Balanced. In addition to that, Shelton Green is 1.33 times more volatile than Plumb Balanced. It trades about -0.09 of its total potential returns per unit of risk. Plumb Balanced is currently generating about -0.07 per unit of volatility. If you would invest  3,656  in Plumb Balanced on December 28, 2024 and sell it today you would lose (141.00) from holding Plumb Balanced or give up 3.86% of portfolio value over 90 days.

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

Shelton Green Alpha  vs.  Plumb Balanced

Shelton Green Alpha

Risk-Adjusted Performance

Very Weak

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

Plumb Balanced

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Shelton Green and Plumb Balanced

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

The idea behind Shelton Green Alpha and Plumb Balanced 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.