Correlation Between Aggressive Balanced and Dearborn Partners

Can any of the company-specific risk be diversified away by investing in both Aggressive Balanced and Dearborn Partners 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 Aggressive Balanced and Dearborn Partners into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Aggressive Balanced Allocation and Dearborn Partners Rising, you can compare the effects of market volatilities on Aggressive Balanced and Dearborn Partners 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 Aggressive Balanced with a short position of Dearborn Partners. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aggressive Balanced and Dearborn Partners.

Diversification Opportunities for Aggressive Balanced and Dearborn Partners

0.66

Correlation Coefficient

Aggressive Balanced  Dearborn Partners

Poor diversification

The 3 months correlation between Aggressive and Dearborn is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Aggressive Balanced Allocation and Dearborn Partners Rising in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dearborn Partners Rising and Aggressive Balanced 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 Aggressive Balanced Allocation are associated (or correlated) with Dearborn Partners. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dearborn Partners Rising has no effect on the direction of Aggressive Balanced i.e., Aggressive Balanced and Dearborn Partners go up and down completely randomly.

Pair Corralation between Aggressive Balanced and Dearborn Partners

Assuming the 90 days horizon Aggressive Balanced Allocation is expected to generate 0.83 times more return on investment than Dearborn Partners. However, Aggressive Balanced Allocation is 1.21 times less risky than Dearborn Partners. It trades about 0.05 of its potential returns per unit of risk. Dearborn Partners Rising is currently generating about -0.07 per unit of risk. If you would invest  1,194  in Aggressive Balanced Allocation on October 26, 2024 and sell it today you would earn a total of  25.00  from holding Aggressive Balanced Allocation or generate 2.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

Aggressive Balanced Allocation  vs.  Dearborn Partners Rising

Aggressive Balanced

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Aggressive Balanced Allocation are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Aggressive Balanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dearborn Partners Rising

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dearborn Partners Rising has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Dearborn Partners is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Aggressive Balanced and Dearborn Partners

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

The idea behind Aggressive Balanced Allocation and Dearborn Partners Rising 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 Global Correlations module to find global opportunities by holding instruments from different markets.