Correlation Between Sentinel Small and Kensington Managed

Can any of the company-specific risk be diversified away by investing in both Sentinel Small and Kensington Managed 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 Kensington Managed 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 Kensington Managed Income, you can compare the effects of market volatilities on Sentinel Small and Kensington Managed 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 Kensington Managed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sentinel Small and Kensington Managed.

Diversification Opportunities for Sentinel Small and Kensington Managed

0.8

Correlation Coefficient

Sentinel Small  Kensington Managed

Very poor diversification

The 3 months correlation between Sentinel and Kensington is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Sentinel Small Pany and Kensington Managed Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kensington Managed Income 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 Kensington Managed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kensington Managed Income has no effect on the direction of Sentinel Small i.e., Sentinel Small and Kensington Managed go up and down completely randomly.

Pair Corralation between Sentinel Small and Kensington Managed

Assuming the 90 days horizon Sentinel Small Pany is expected to generate 7.7 times more return on investment than Kensington Managed. However, Sentinel Small is 7.7 times more volatile than Kensington Managed Income. It trades about 0.05 of its potential returns per unit of risk. Kensington Managed Income is currently generating about 0.08 per unit of risk. If you would invest  714.00  in Sentinel Small Pany on September 14, 2024 and sell it today you would earn a total of  24.00  from holding Sentinel Small Pany or generate 3.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Sentinel Small Pany  vs.  Kensington Managed Income

Sentinel Small Pany

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sentinel Small Pany are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Sentinel Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Kensington Managed Income

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kensington Managed Income are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Kensington Managed 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 Kensington Managed

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

The idea behind Sentinel Small Pany and Kensington Managed Income 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.