Correlation Between Plumb Balanced and Plumb Equity

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

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

Diversification Opportunities for Plumb Balanced and Plumb Equity

0.9

Correlation Coefficient

Plumb Balanced  Plumb Equity

Almost no diversification

The 3 months correlation between Plumb and Plumb is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Plumb Balanced Fund and Plumb Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plumb Equity and Plumb Balanced 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 Plumb Balanced Fund are associated (or correlated) with Plumb Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plumb Equity has no effect on the direction of Plumb Balanced i.e., Plumb Balanced and Plumb Equity go up and down completely randomly.

Pair Corralation between Plumb Balanced and Plumb Equity

Assuming the 90 days horizon Plumb Balanced Fund is expected to generate 0.64 times more return on investment than Plumb Equity. However, Plumb Balanced Fund is 1.57 times less risky than Plumb Equity. It trades about -0.07 of its potential returns per unit of risk. Plumb Equity is currently generating about -0.09 per unit of risk. If you would invest  3,691  in Plumb Balanced Fund on December 26, 2024 and sell it today you would lose (57.00) from holding Plumb Balanced Fund or give up 1.54% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.65%
Values	Daily Returns

Plumb Balanced Fund  vs.  Plumb Equity

Plumb Balanced

Risk-Adjusted Performance

Very Weak

Over the last 90 days Plumb Balanced Fund 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.

Plumb Equity

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Plumb Balanced and Plumb Equity

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

The idea behind Plumb Balanced Fund and Plumb Equity 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.