Correlation Between Inverse High and Sarofim Equity

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

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

Diversification Opportunities for Inverse High and Sarofim Equity

-0.49

Correlation Coefficient

Inverse High  Sarofim Equity

Very good diversification

The 3 months correlation between Inverse and Sarofim is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Inverse High Yield and Sarofim Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sarofim Equity and Inverse High 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 Inverse High Yield are associated (or correlated) with Sarofim Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sarofim Equity has no effect on the direction of Inverse High i.e., Inverse High and Sarofim Equity go up and down completely randomly.

Pair Corralation between Inverse High and Sarofim Equity

Assuming the 90 days horizon Inverse High Yield is expected to under-perform the Sarofim Equity. But the mutual fund apears to be less risky and, when comparing its historical volatility, Inverse High Yield is 2.78 times less risky than Sarofim Equity. The mutual fund trades about -0.02 of its potential returns per unit of risk. The Sarofim Equity is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,473  in Sarofim Equity on October 3, 2024 and sell it today you would lose (64.00) from holding Sarofim Equity or give up 4.34% of portfolio value over 90 days.

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

Inverse High Yield  vs.  Sarofim Equity

Inverse High Yield

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Inverse High Yield are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical indicators, Inverse High is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Sarofim Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sarofim Equity has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's primary indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Inverse High and Sarofim Equity

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

The idea behind Inverse High Yield and Sarofim Equity 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.