Correlation Between Sit Balanced and Plumb Balanced

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

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

Diversification Opportunities for Sit Balanced and Plumb Balanced

0.96

Correlation Coefficient

Sit Balanced  Plumb Balanced

Almost no diversification

The 3 months correlation between Sit and Plumb is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Sit Balanced Fund and Plumb Balanced Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plumb Balanced and Sit 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 Sit Balanced Fund are associated (or correlated) with Plumb Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plumb Balanced has no effect on the direction of Sit Balanced i.e., Sit Balanced and Plumb Balanced go up and down completely randomly.

Pair Corralation between Sit Balanced and Plumb Balanced

Assuming the 90 days horizon Sit Balanced Fund is expected to under-perform the Plumb Balanced. In addition to that, Sit Balanced is 1.01 times more volatile than Plumb Balanced Fund. It trades about -0.08 of its total potential returns per unit of risk. Plumb Balanced Fund is currently generating about -0.03 per unit of volatility. If you would invest  3,695  in Plumb Balanced Fund on December 27, 2024 and sell it today you would lose (61.00) from holding Plumb Balanced Fund or give up 1.65% of portfolio value over 90 days.

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

Sit Balanced Fund  vs.  Plumb Balanced Fund

Sit Balanced

Risk-Adjusted Performance

Very Weak

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

Plumb Balanced

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Sit Balanced and Plumb Balanced

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

The idea behind Sit Balanced Fund and Plumb Balanced Fund 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.