Correlation Between Rational Strategic and Real Assets

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

By analyzing existing cross correlation between Rational Strategic Allocation and Real Assets Portfolio, you can compare the effects of market volatilities on Rational Strategic and Real Assets 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 Rational Strategic with a short position of Real Assets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rational Strategic and Real Assets.

Diversification Opportunities for Rational Strategic and Real Assets

0.09

Correlation Coefficient

Rational Strategic  Real Assets

Significant diversification

The 3 months correlation between Rational and Real is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Rational Strategic Allocation and Real Assets Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Real Assets Portfolio and Rational Strategic 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 Rational Strategic Allocation are associated (or correlated) with Real Assets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Real Assets Portfolio has no effect on the direction of Rational Strategic i.e., Rational Strategic and Real Assets go up and down completely randomly.

Pair Corralation between Rational Strategic and Real Assets

Assuming the 90 days horizon Rational Strategic Allocation is expected to under-perform the Real Assets. In addition to that, Rational Strategic is 3.45 times more volatile than Real Assets Portfolio. It trades about -0.07 of its total potential returns per unit of risk. Real Assets Portfolio is currently generating about 0.11 per unit of volatility. If you would invest  1,004  in Real Assets Portfolio on December 2, 2024 and sell it today you would earn a total of  30.00  from holding Real Assets Portfolio or generate 2.99% return on investment over 90 days.

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

Rational Strategic Allocation  vs.  Real Assets Portfolio

Rational Strategic

Risk-Adjusted Performance

Very Weak

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

Real Assets Portfolio

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Real Assets Portfolio are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Real Assets is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Rational Strategic and Real Assets

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

The idea behind Rational Strategic Allocation and Real Assets Portfolio 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.