Correlation Between Rational Strategic and Northeast Investors

Can any of the company-specific risk be diversified away by investing in both Rational Strategic and Northeast Investors 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 Northeast Investors 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 Northeast Investors Trust, you can compare the effects of market volatilities on Rational Strategic and Northeast Investors 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 Northeast Investors. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rational Strategic and Northeast Investors.

Diversification Opportunities for Rational Strategic and Northeast Investors

0.2

Correlation Coefficient

Rational Strategic  Northeast Investors

Modest diversification

The 3 months correlation between Rational and Northeast is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Rational Strategic Allocation and Northeast Investors Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northeast Investors Trust 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 Northeast Investors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northeast Investors Trust has no effect on the direction of Rational Strategic i.e., Rational Strategic and Northeast Investors go up and down completely randomly.

Pair Corralation between Rational Strategic and Northeast Investors

Assuming the 90 days horizon Rational Strategic Allocation is expected to generate 3.94 times more return on investment than Northeast Investors. However, Rational Strategic is 3.94 times more volatile than Northeast Investors Trust. It trades about 0.08 of its potential returns per unit of risk. Northeast Investors Trust is currently generating about 0.06 per unit of risk. If you would invest  911.00  in Rational Strategic Allocation on September 13, 2024 and sell it today you would earn a total of  53.00  from holding Rational Strategic Allocation or generate 5.82% return on investment over 90 days.

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

Rational Strategic Allocation  vs.  Northeast Investors Trust

Rational Strategic

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Rational Strategic Allocation are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Rational Strategic is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Northeast Investors Trust

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Northeast Investors Trust are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Northeast Investors 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 Northeast Investors

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

The idea behind Rational Strategic Allocation and Northeast Investors Trust 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.