Correlation Between Moderate Balanced and Sierra Core

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

Diversification Opportunities for Moderate Balanced and Sierra Core

0.89

Correlation Coefficient

Moderate Balanced  Sierra Core

Very poor diversification

The 3 months correlation between Moderate and Sierra is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Moderate Balanced Allocation and Sierra E Retirement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sierra E Retirement 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 Sierra Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sierra E Retirement has no effect on the direction of Moderate Balanced i.e., Moderate Balanced and Sierra Core go up and down completely randomly.

Pair Corralation between Moderate Balanced and Sierra Core

Assuming the 90 days horizon Moderate Balanced Allocation is expected to under-perform the Sierra Core. In addition to that, Moderate Balanced is 1.59 times more volatile than Sierra E Retirement. It trades about -0.06 of its total potential returns per unit of risk. Sierra E Retirement is currently generating about -0.06 per unit of volatility. If you would invest  2,267  in Sierra E Retirement on December 22, 2024 and sell it today you would lose (32.00) from holding Sierra E Retirement or give up 1.41% of portfolio value over 90 days.

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

Moderate Balanced Allocation  vs.  Sierra E Retirement

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.

Sierra E Retirement

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sierra E Retirement has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Sierra Core 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 Sierra Core

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

The idea behind Moderate Balanced Allocation and Sierra E Retirement 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.

Check out your portfolio center.

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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.