Correlation Between Multifactor Equity and Conservative Strategy

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

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

Diversification Opportunities for Multifactor Equity and Conservative Strategy

-0.38

Correlation Coefficient

Multifactor Equity  Conservative Strategy

Very good diversification

The 3 months correlation between Multifactor and Conservative is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Multifactor Equity Fund and Conservative Strategy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Conservative Strategy and Multifactor 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 Multifactor Equity Fund are associated (or correlated) with Conservative Strategy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Conservative Strategy has no effect on the direction of Multifactor Equity i.e., Multifactor Equity and Conservative Strategy go up and down completely randomly.

Pair Corralation between Multifactor Equity and Conservative Strategy

Assuming the 90 days horizon Multifactor Equity Fund is expected to generate 2.47 times more return on investment than Conservative Strategy. However, Multifactor Equity is 2.47 times more volatile than Conservative Strategy Fund. It trades about 0.24 of its potential returns per unit of risk. Conservative Strategy Fund is currently generating about 0.02 per unit of risk. If you would invest  1,848  in Multifactor Equity Fund on September 5, 2024 and sell it today you would earn a total of  215.00  from holding Multifactor Equity Fund or generate 11.63% return on investment over 90 days.

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

Multifactor Equity Fund  vs.  Conservative Strategy Fund

Multifactor Equity

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Multifactor Equity Fund are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Multifactor Equity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Conservative Strategy

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Conservative Strategy Fund are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Conservative Strategy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Multifactor Equity and Conservative Strategy

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

The idea behind Multifactor Equity Fund and Conservative Strategy 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 CEOs Directory module to screen CEOs from public companies around the world.