Correlation Between Strategic Allocation and Money Market

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

By analyzing existing cross correlation between Strategic Allocation Moderate and Money Market Obligations, you can compare the effects of market volatilities on Strategic Allocation and Money 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 Strategic Allocation with a short position of Money Market. Check out your portfolio center. Please also check ongoing floating volatility patterns of Strategic Allocation and Money Market.

Diversification Opportunities for Strategic Allocation and Money Market

0.3

Correlation Coefficient

Strategic Allocation  Money Market

Weak diversification

The 3 months correlation between Strategic and Money is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Strategic Allocation Moderate and Money Market Obligations in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Money Market Obligations and Strategic Allocation 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 Strategic Allocation Moderate are associated (or correlated) with Money Market. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Money Market Obligations has no effect on the direction of Strategic Allocation i.e., Strategic Allocation and Money Market go up and down completely randomly.

Pair Corralation between Strategic Allocation and Money Market

Assuming the 90 days horizon Strategic Allocation is expected to generate 28.48 times less return on investment than Money Market. But when comparing it to its historical volatility, Strategic Allocation Moderate is 54.61 times less risky than Money Market. It trades about 0.1 of its potential returns per unit of risk. Money Market Obligations is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  91.00  in Money Market Obligations on September 20, 2024 and sell it today you would earn a total of  9.00  from holding Money Market Obligations or generate 9.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.61%
Values	Daily Returns

Strategic Allocation Moderate  vs.  Money Market Obligations

Strategic Allocation

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Strategic Allocation Moderate are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Strategic Allocation is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Money Market Obligations

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Money Market Obligations are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Money 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 Strategic Allocation and Money Market

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

The idea behind Strategic Allocation Moderate and Money Market Obligations 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.