Correlation Between Moderate Balanced and Salient Alternative

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

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

Diversification Opportunities for Moderate Balanced and Salient Alternative

1.0

Correlation Coefficient

Moderate Balanced  Salient Alternative

No risk reduction

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

Pair Corralation between Moderate Balanced and Salient Alternative

Assuming the 90 days horizon Moderate Balanced Allocation is expected to generate 0.85 times more return on investment than Salient Alternative. However, Moderate Balanced Allocation is 1.18 times less risky than Salient Alternative. It trades about -0.04 of its potential returns per unit of risk. Salient Alternative Beta is currently generating about -0.03 per unit of risk. If you would invest  1,170  in Moderate Balanced Allocation on December 30, 2024 and sell it today you would lose (20.00) from holding Moderate Balanced Allocation or give up 1.71% of portfolio value over 90 days.

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

Moderate Balanced Allocation  vs.  Salient Alternative Beta

Moderate Balanced

Risk-Adjusted Performance

Very Weak

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

Salient Alternative Beta

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Moderate Balanced and Salient Alternative

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

The idea behind Moderate Balanced Allocation and Salient Alternative Beta 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .