Correlation Between Sierra Tactical and Stone Toro

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

By analyzing existing cross correlation between Sierra Tactical Municipal and Stone Toro Market, you can compare the effects of market volatilities on Sierra Tactical and Stone Toro 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 Stone Toro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sierra Tactical and Stone Toro.

Diversification Opportunities for Sierra Tactical and Stone Toro

0.91

Correlation Coefficient

Sierra Tactical  Stone Toro

Almost no diversification

The 3 months correlation between Sierra and Stone is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Sierra Tactical Municipal and Stone Toro Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stone Toro Market 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 Municipal are associated (or correlated) with Stone Toro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stone Toro Market has no effect on the direction of Sierra Tactical i.e., Sierra Tactical and Stone Toro go up and down completely randomly.

Pair Corralation between Sierra Tactical and Stone Toro

Assuming the 90 days horizon Sierra Tactical Municipal is expected to under-perform the Stone Toro. But the mutual fund apears to be less risky and, when comparing its historical volatility, Sierra Tactical Municipal is 1.01 times less risky than Stone Toro. The mutual fund trades about -0.1 of its potential returns per unit of risk. The Stone Toro Market is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  2,533  in Stone Toro Market on December 29, 2024 and sell it today you would lose (36.00) from holding Stone Toro Market or give up 1.42% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.39%
Values	Daily Returns

Sierra Tactical Municipal  vs.  Stone Toro Market

Sierra Tactical Municipal

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sierra Tactical Municipal has generated negative risk-adjusted returns adding no value to fund investors. 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.

Stone Toro Market

Risk-Adjusted Performance

Very Weak

Over the last 90 days Stone Toro Market has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Stone Toro 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 Tactical and Stone Toro

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

The idea behind Sierra Tactical Municipal and Stone Toro Market 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.

Check out your portfolio center.

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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.