Correlation Between Victory Diversified and Extended Market

Can any of the company-specific risk be diversified away by investing in both Victory Diversified and Extended Market 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 Victory Diversified and Extended Market into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Victory Diversified Stock and Extended Market Index, you can compare the effects of market volatilities on Victory Diversified and Extended Market 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 Victory Diversified with a short position of Extended Market. Check out your portfolio center. Please also check ongoing floating volatility patterns of Victory Diversified and Extended Market.

Diversification Opportunities for Victory Diversified and Extended Market

0.94

Correlation Coefficient

Victory Diversified  Extended Market

Almost no diversification

The 3 months correlation between Victory and Extended is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Victory Diversified Stock and Extended Market Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Extended Market Index and Victory Diversified 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 Victory Diversified Stock are associated (or correlated) with Extended Market. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Extended Market Index has no effect on the direction of Victory Diversified i.e., Victory Diversified and Extended Market go up and down completely randomly.

Pair Corralation between Victory Diversified and Extended Market

Assuming the 90 days horizon Victory Diversified Stock is expected to generate 0.96 times more return on investment than Extended Market. However, Victory Diversified Stock is 1.04 times less risky than Extended Market. It trades about -0.08 of its potential returns per unit of risk. Extended Market Index is currently generating about -0.07 per unit of risk. If you would invest  2,210  in Victory Diversified Stock on December 27, 2024 and sell it today you would lose (114.00) from holding Victory Diversified Stock or give up 5.16% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.36%
Values	Daily Returns

Victory Diversified Stock  vs.  Extended Market Index

Victory Diversified Stock

Risk-Adjusted Performance

Very Weak

Over the last 90 days Victory Diversified Stock has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Victory Diversified is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Extended Market Index

Risk-Adjusted Performance

Very Weak

Over the last 90 days Extended Market Index has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Extended Market is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Victory Diversified and Extended Market

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

The idea behind Victory Diversified Stock and Extended Market Index 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .