Correlation Between Pinnacle Value and Extended Market

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

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

Diversification Opportunities for Pinnacle Value and Extended Market

0.91

Correlation Coefficient

Pinnacle Value  Extended Market

Almost no diversification

The 3 months correlation between Pinnacle and Extended is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Pinnacle Value Fund and Extended Market Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Extended Market Index and Pinnacle Value 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 Pinnacle Value Fund are associated (or correlated) with Extended Market. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Extended Market Index has no effect on the direction of Pinnacle Value i.e., Pinnacle Value and Extended Market go up and down completely randomly.

Pair Corralation between Pinnacle Value and Extended Market

Assuming the 90 days horizon Pinnacle Value Fund is expected to generate 1.01 times more return on investment than Extended Market. However, Pinnacle Value is 1.01 times more volatile than Extended Market Index. It trades about -0.15 of its potential returns per unit of risk. Extended Market Index is currently generating about -0.19 per unit of risk. If you would invest  1,890  in Pinnacle Value Fund on October 9, 2024 and sell it today you would lose (242.00) from holding Pinnacle Value Fund or give up 12.8% of portfolio value over 90 days.

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

Pinnacle Value Fund  vs.  Extended Market Index

Pinnacle Value

Risk-Adjusted Performance

0 of 100

Very Weak

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

Extended Market Index

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Pinnacle Value and Extended Market

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

The idea behind Pinnacle Value Fund and Extended Market Index 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.