Correlation Between Smead Value and Aggressive Investors

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

By analyzing existing cross correlation between Smead Value Fund and Aggressive Investors 1, you can compare the effects of market volatilities on Smead Value and Aggressive Investors 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 Smead Value with a short position of Aggressive Investors. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smead Value and Aggressive Investors.

Diversification Opportunities for Smead Value and Aggressive Investors

0.03

Correlation Coefficient

Smead Value  Aggressive Investors

Significant diversification

The 3 months correlation between Smead and Aggressive is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Smead Value Fund and Aggressive Investors 1 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aggressive Investors and Smead Value 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 Smead Value Fund are associated (or correlated) with Aggressive Investors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aggressive Investors has no effect on the direction of Smead Value i.e., Smead Value and Aggressive Investors go up and down completely randomly.

Pair Corralation between Smead Value and Aggressive Investors

Assuming the 90 days horizon Smead Value is expected to generate 6.81 times less return on investment than Aggressive Investors. But when comparing it to its historical volatility, Smead Value Fund is 1.08 times less risky than Aggressive Investors. It trades about 0.02 of its potential returns per unit of risk. Aggressive Investors 1 is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  7,333  in Aggressive Investors 1 on October 2, 2024 and sell it today you would earn a total of  2,428  from holding Aggressive Investors 1 or generate 33.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.6%
Values	Daily Returns

Smead Value Fund  vs.  Aggressive Investors 1

Smead Value Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Smead Value Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Aggressive Investors

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aggressive Investors 1 are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Aggressive Investors may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Smead Value and Aggressive Investors

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

The idea behind Smead Value Fund and Aggressive Investors 1 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.