Correlation Between Scout Core and Pro Blend

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

By analyzing existing cross correlation between Scout E Plus and Pro Blend Moderate Term, you can compare the effects of market volatilities on Scout Core and Pro Blend 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 Scout Core with a short position of Pro Blend. Check out your portfolio center. Please also check ongoing floating volatility patterns of Scout Core and Pro Blend.

Diversification Opportunities for Scout Core and Pro Blend

0.79

Correlation Coefficient

Scout Core  Pro Blend

Poor diversification

The 3 months correlation between SCOUT and Pro is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Scout E Plus and Pro Blend Moderate Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pro Blend Moderate and Scout Core 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 Scout E Plus are associated (or correlated) with Pro Blend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pro Blend Moderate has no effect on the direction of Scout Core i.e., Scout Core and Pro Blend go up and down completely randomly.

Pair Corralation between Scout Core and Pro Blend

Assuming the 90 days horizon Scout Core is expected to generate 1.71 times less return on investment than Pro Blend. But when comparing it to its historical volatility, Scout E Plus is 1.06 times less risky than Pro Blend. It trades about 0.02 of its potential returns per unit of risk. Pro Blend Moderate Term is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,327  in Pro Blend Moderate Term on October 4, 2024 and sell it today you would earn a total of  78.00  from holding Pro Blend Moderate Term or generate 5.88% return on investment over 90 days.

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

Scout E Plus  vs.  Pro Blend Moderate Term

Scout E Plus

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pro Blend Moderate

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Scout Core and Pro Blend

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

The idea behind Scout E Plus and Pro Blend Moderate Term 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.