Correlation Between Sentinel Small and Touchstone Dividend

Can any of the company-specific risk be diversified away by investing in both Sentinel Small and Touchstone Dividend 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 Sentinel Small and Touchstone Dividend into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sentinel Small and Touchstone Dividend Equity, you can compare the effects of market volatilities on Sentinel Small and Touchstone Dividend 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 Sentinel Small with a short position of Touchstone Dividend. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sentinel Small and Touchstone Dividend.

Diversification Opportunities for Sentinel Small and Touchstone Dividend

0.45

Correlation Coefficient

Sentinel Small  Touchstone Dividend

Very weak diversification

The 3 months correlation between Sentinel and Touchstone is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Sentinel Small and Touchstone Dividend Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Touchstone Dividend and Sentinel Small 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 Sentinel Small are associated (or correlated) with Touchstone Dividend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Touchstone Dividend has no effect on the direction of Sentinel Small i.e., Sentinel Small and Touchstone Dividend go up and down completely randomly.

Pair Corralation between Sentinel Small and Touchstone Dividend

Assuming the 90 days horizon Sentinel Small is expected to under-perform the Touchstone Dividend. In addition to that, Sentinel Small is 1.34 times more volatile than Touchstone Dividend Equity. It trades about -0.11 of its total potential returns per unit of risk. Touchstone Dividend Equity is currently generating about 0.0 per unit of volatility. If you would invest  1,812  in Touchstone Dividend Equity on December 24, 2024 and sell it today you would lose (1.00) from holding Touchstone Dividend Equity or give up 0.06% of portfolio value over 90 days.

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

Sentinel Small  vs.  Touchstone Dividend Equity

Sentinel Small

Risk-Adjusted Performance

Very Weak

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

Touchstone Dividend

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Sentinel Small and Touchstone Dividend

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

The idea behind Sentinel Small and Touchstone Dividend Equity 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.