Correlation Between Sierra E and Aggressive Growth

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

By analyzing existing cross correlation between Sierra E Retirement and Aggressive Growth Allocation, you can compare the effects of market volatilities on Sierra E and Aggressive Growth 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 Sierra E with a short position of Aggressive Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sierra E and Aggressive Growth.

Diversification Opportunities for Sierra E and Aggressive Growth

0.55

Correlation Coefficient

Sierra E  Aggressive Growth

Very weak diversification

The 3 months correlation between Sierra and Aggressive is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Sierra E Retirement and Aggressive Growth Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aggressive Growth and Sierra E 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 Sierra E Retirement are associated (or correlated) with Aggressive Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aggressive Growth has no effect on the direction of Sierra E i.e., Sierra E and Aggressive Growth go up and down completely randomly.

Pair Corralation between Sierra E and Aggressive Growth

Assuming the 90 days horizon Sierra E is expected to generate 27.75 times less return on investment than Aggressive Growth. But when comparing it to its historical volatility, Sierra E Retirement is 2.0 times less risky than Aggressive Growth. It trades about 0.01 of its potential returns per unit of risk. Aggressive Growth Allocation is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,126  in Aggressive Growth Allocation on September 15, 2024 and sell it today you would earn a total of  48.00  from holding Aggressive Growth Allocation or generate 4.26% return on investment over 90 days.

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

Sierra E Retirement  vs.  Aggressive Growth Allocation

Sierra E Retirement

Risk-Adjusted Performance

0 of 100

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 E is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Aggressive Growth

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aggressive Growth Allocation are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Aggressive Growth is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sierra E and Aggressive Growth

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

The idea behind Sierra E Retirement and Aggressive Growth Allocation 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.