Correlation Between Sentinel Small and Anchor Risk

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

By analyzing existing cross correlation between Sentinel Small Pany and Anchor Risk Managed, you can compare the effects of market volatilities on Sentinel Small and Anchor Risk 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 Sentinel Small with a short position of Anchor Risk. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sentinel Small and Anchor Risk.

Diversification Opportunities for Sentinel Small and Anchor Risk

0.38

Correlation Coefficient

Sentinel Small  Anchor Risk

Weak diversification

The 3 months correlation between Sentinel and Anchor is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Sentinel Small Pany and Anchor Risk Managed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anchor Risk Managed and Sentinel Small 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 Sentinel Small Pany are associated (or correlated) with Anchor Risk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anchor Risk Managed has no effect on the direction of Sentinel Small i.e., Sentinel Small and Anchor Risk go up and down completely randomly.

Pair Corralation between Sentinel Small and Anchor Risk

Assuming the 90 days horizon Sentinel Small Pany is expected to under-perform the Anchor Risk. In addition to that, Sentinel Small is 1.41 times more volatile than Anchor Risk Managed. It trades about -0.22 of its total potential returns per unit of risk. Anchor Risk Managed is currently generating about -0.12 per unit of volatility. If you would invest  1,500  in Anchor Risk Managed on December 4, 2024 and sell it today you would lose (87.00) from holding Anchor Risk Managed or give up 5.8% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Sentinel Small Pany  vs.  Anchor Risk Managed

Sentinel Small Pany

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sentinel Small Pany has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Anchor Risk Managed

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Sentinel Small and Anchor Risk

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

The idea behind Sentinel Small Pany and Anchor Risk Managed 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..