Correlation Between Moderately Conservative and Moderately Aggressive

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

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

Diversification Opportunities for Moderately Conservative and Moderately Aggressive

1.0

Correlation Coefficient

Moderately Conservative  Moderately Aggressive

No risk reduction

The 3 months correlation between Moderately and Moderately is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Moderately Servative Balanced and Moderately Aggressive Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Moderately Aggressive and Moderately Conservative 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 Moderately Servative Balanced are associated (or correlated) with Moderately Aggressive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Moderately Aggressive has no effect on the direction of Moderately Conservative i.e., Moderately Conservative and Moderately Aggressive go up and down completely randomly.

Pair Corralation between Moderately Conservative and Moderately Aggressive

Assuming the 90 days horizon Moderately Conservative is expected to generate 1.11 times less return on investment than Moderately Aggressive. But when comparing it to its historical volatility, Moderately Servative Balanced is 1.11 times less risky than Moderately Aggressive. It trades about 0.2 of its potential returns per unit of risk. Moderately Aggressive Balanced is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  1,178  in Moderately Aggressive Balanced on September 3, 2024 and sell it today you would earn a total of  79.00  from holding Moderately Aggressive Balanced or generate 6.71% return on investment over 90 days.

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

Moderately Servative Balanced  vs.  Moderately Aggressive Balanced

Moderately Conservative

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Moderately Servative Balanced are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Moderately Conservative is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Moderately Aggressive

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Moderately Aggressive Balanced are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Moderately Aggressive may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Moderately Conservative and Moderately Aggressive

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

The idea behind Moderately Servative Balanced and Moderately Aggressive Balanced 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.