Correlation Between Rational Strategic and Total Return

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

Diversification Opportunities for Rational Strategic and Total Return

0.4

Correlation Coefficient

Rational Strategic  Total Return

Very weak diversification

The 3 months correlation between Rational and Total is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Rational Strategic Allocation and Total Return Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Total Return 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 Total Return. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Total Return has no effect on the direction of Rational Strategic i.e., Rational Strategic and Total Return go up and down completely randomly.

Pair Corralation between Rational Strategic and Total Return

Assuming the 90 days horizon Rational Strategic Allocation is expected to under-perform the Total Return. In addition to that, Rational Strategic is 5.8 times more volatile than Total Return Fund. It trades about -0.03 of its total potential returns per unit of risk. Total Return Fund is currently generating about -0.13 per unit of volatility. If you would invest  870.00  in Total Return Fund on October 7, 2024 and sell it today you would lose (21.00) from holding Total Return Fund or give up 2.41% of portfolio value over 90 days.

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

Rational Strategic Allocation  vs.  Total Return Fund

Rational Strategic

Risk-Adjusted Performance

0 of 100

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 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.

Total Return

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Total Return Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Total Return 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 Total Return

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

The idea behind Rational Strategic Allocation and Total Return Fund 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.