Correlation Between Plumb Equity and Plumb Balanced

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

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

Diversification Opportunities for Plumb Equity and Plumb Balanced

0.72

Correlation Coefficient

Plumb Equity  Plumb Balanced

Poor diversification

The 3 months correlation between Plumb and Plumb is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Plumb Equity Fund and Plumb Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plumb Balanced and Plumb Equity 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 Equity Fund 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 Plumb Equity i.e., Plumb Equity and Plumb Balanced go up and down completely randomly.

Pair Corralation between Plumb Equity and Plumb Balanced

Assuming the 90 days horizon Plumb Equity Fund is expected to under-perform the Plumb Balanced. In addition to that, Plumb Equity is 1.64 times more volatile than Plumb Balanced. It trades about -0.08 of its total potential returns per unit of risk. Plumb Balanced is currently generating about -0.06 per unit of volatility. If you would invest  3,686  in Plumb Balanced on December 27, 2024 and sell it today you would lose (118.00) from holding Plumb Balanced or give up 3.2% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Plumb Equity Fund  vs.  Plumb Balanced

Plumb Equity

Risk-Adjusted Performance

Very Weak

Over the last 90 days Plumb Equity Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund 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 Plumb Equity and Plumb Balanced

The main advantage of trading using opposite Plumb Equity and Plumb Balanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Plumb Equity 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 Plumb Equity Fund 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.