Correlation Between Aggressive Balanced and Adams Natural

Can any of the company-specific risk be diversified away by investing in both Aggressive Balanced and Adams Natural 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 Adams Natural 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 Adams Natural Resources, you can compare the effects of market volatilities on Aggressive Balanced and Adams Natural 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 Adams Natural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aggressive Balanced and Adams Natural.

Diversification Opportunities for Aggressive Balanced and Adams Natural

0.28

Correlation Coefficient

Aggressive Balanced  Adams Natural

Modest diversification

The 3 months correlation between Aggressive and Adams is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Aggressive Balanced Allocation and Adams Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adams Natural Resources 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 Adams Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adams Natural Resources has no effect on the direction of Aggressive Balanced i.e., Aggressive Balanced and Adams Natural go up and down completely randomly.

Pair Corralation between Aggressive Balanced and Adams Natural

Assuming the 90 days horizon Aggressive Balanced Allocation is expected to under-perform the Adams Natural. But the mutual fund apears to be less risky and, when comparing its historical volatility, Aggressive Balanced Allocation is 1.5 times less risky than Adams Natural. The mutual fund trades about -0.02 of its potential returns per unit of risk. The Adams Natural Resources is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  2,095  in Adams Natural Resources on December 27, 2024 and sell it today you would earn a total of  213.00  from holding Adams Natural Resources or generate 10.17% return on investment over 90 days.

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

Aggressive Balanced Allocation  vs.  Adams Natural Resources

Aggressive Balanced

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aggressive Balanced Allocation has generated negative risk-adjusted returns adding no value to fund investors. 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.

Adams Natural Resources

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Adams Natural Resources are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of very fragile technical and fundamental indicators, Adams Natural may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Aggressive Balanced and Adams Natural

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

The idea behind Aggressive Balanced Allocation and Adams Natural Resources 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.