Correlation Between Sierra Tactical and Materials Portfolio

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

By analyzing existing cross correlation between Sierra Tactical Risk and Materials Portfolio Fidelity, you can compare the effects of market volatilities on Sierra Tactical and Materials Portfolio 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 Tactical with a short position of Materials Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sierra Tactical and Materials Portfolio.

Diversification Opportunities for Sierra Tactical and Materials Portfolio

0.67

Correlation Coefficient

Sierra Tactical  Materials Portfolio

Poor diversification

The 3 months correlation between Sierra and Materials is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Sierra Tactical Risk and Materials Portfolio Fidelity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Materials Portfolio and Sierra Tactical 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 Tactical Risk are associated (or correlated) with Materials Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Materials Portfolio has no effect on the direction of Sierra Tactical i.e., Sierra Tactical and Materials Portfolio go up and down completely randomly.

Pair Corralation between Sierra Tactical and Materials Portfolio

Assuming the 90 days horizon Sierra Tactical is expected to generate 2.64 times less return on investment than Materials Portfolio. But when comparing it to its historical volatility, Sierra Tactical Risk is 2.82 times less risky than Materials Portfolio. It trades about 0.14 of its potential returns per unit of risk. Materials Portfolio Fidelity is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  9,535  in Materials Portfolio Fidelity on September 4, 2024 and sell it today you would earn a total of  698.00  from holding Materials Portfolio Fidelity or generate 7.32% return on investment over 90 days.

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

Sierra Tactical Risk  vs.  Materials Portfolio Fidelity

Sierra Tactical Risk

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sierra Tactical Risk are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Sierra Tactical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Materials Portfolio

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Materials Portfolio Fidelity are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Materials Portfolio may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Sierra Tactical and Materials Portfolio

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

The idea behind Sierra Tactical Risk and Materials Portfolio Fidelity 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.