Correlation Between NewFunds Low and Discovery Aggressive

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

By analyzing existing cross correlation between NewFunds Low Volatility and Discovery Aggressive Dynamic, you can compare the effects of market volatilities on NewFunds Low and Discovery Aggressive 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 NewFunds Low with a short position of Discovery Aggressive. Check out your portfolio center. Please also check ongoing floating volatility patterns of NewFunds Low and Discovery Aggressive.

Diversification Opportunities for NewFunds Low and Discovery Aggressive

0.65

Correlation Coefficient

NewFunds Low  Discovery Aggressive

Poor diversification

The 3 months correlation between NewFunds and Discovery is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding NewFunds Low Volatility and Discovery Aggressive Dynamic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Discovery Aggressive and NewFunds Low 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 NewFunds Low Volatility are associated (or correlated) with Discovery Aggressive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Discovery Aggressive has no effect on the direction of NewFunds Low i.e., NewFunds Low and Discovery Aggressive go up and down completely randomly.

Pair Corralation between NewFunds Low and Discovery Aggressive

Assuming the 90 days trading horizon NewFunds Low Volatility is expected to under-perform the Discovery Aggressive. In addition to that, NewFunds Low is 1.4 times more volatile than Discovery Aggressive Dynamic. It trades about -0.1 of its total potential returns per unit of risk. Discovery Aggressive Dynamic is currently generating about -0.06 per unit of volatility. If you would invest  166.00  in Discovery Aggressive Dynamic on December 5, 2024 and sell it today you would lose (3.00) from holding Discovery Aggressive Dynamic or give up 1.81% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	93.33%
Values	Daily Returns

NewFunds Low Volatility  vs.  Discovery Aggressive Dynamic

NewFunds Low Volatility

Risk-Adjusted Performance

Very Weak

Over the last 90 days NewFunds Low Volatility has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, NewFunds Low is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Discovery Aggressive

Risk-Adjusted Performance

Very Weak

Over the last 90 days Discovery Aggressive Dynamic has generated negative risk-adjusted returns adding no value to fund investors. Despite somewhat strong forward-looking signals, Discovery Aggressive is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with NewFunds Low and Discovery Aggressive

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

The idea behind NewFunds Low Volatility and Discovery Aggressive Dynamic 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.