Correlation Between Sierra Core and Value Line

Can any of the company-specific risk be diversified away by investing in both Sierra Core and Value Line 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 Core and Value Line 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 Value Line Select, you can compare the effects of market volatilities on Sierra Core and Value Line 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 Core with a short position of Value Line. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sierra Core and Value Line.

Diversification Opportunities for Sierra Core and Value Line

0.69

Correlation Coefficient

Sierra Core  Value Line

Poor diversification

The 3 months correlation between Sierra and Value is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Sierra E Retirement and Value Line Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Value Line Select and Sierra 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 Sierra E Retirement are associated (or correlated) with Value Line. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Value Line Select has no effect on the direction of Sierra Core i.e., Sierra Core and Value Line go up and down completely randomly.

Pair Corralation between Sierra Core and Value Line

Assuming the 90 days horizon Sierra E Retirement is expected to under-perform the Value Line. But the mutual fund apears to be less risky and, when comparing its historical volatility, Sierra E Retirement is 1.99 times less risky than Value Line. The mutual fund trades about -0.05 of its potential returns per unit of risk. The Value Line Select is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  3,559  in Value Line Select on December 21, 2024 and sell it today you would lose (53.00) from holding Value Line Select or give up 1.49% of portfolio value over 90 days.

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

Sierra E Retirement  vs.  Value Line Select

Sierra E Retirement

Risk-Adjusted Performance

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

Value Line Select

Risk-Adjusted Performance

Very Weak

Over the last 90 days Value Line Select has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Value Line 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 Core and Value Line

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

The idea behind Sierra E Retirement and Value Line Select 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.