Correlation Between Strategic Allocation and Sierra E

Can any of the company-specific risk be diversified away by investing in both Strategic Allocation and Sierra E 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 Sierra E 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 Sierra E Retirement, you can compare the effects of market volatilities on Strategic Allocation and Sierra E 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 Sierra E. Check out your portfolio center. Please also check ongoing floating volatility patterns of Strategic Allocation and Sierra E.

Diversification Opportunities for Strategic Allocation and Sierra E

0.7

Correlation Coefficient

Strategic Allocation  Sierra E

Poor diversification

The 3 months correlation between Strategic and Sierra is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Strategic Allocation Moderate and Sierra E Retirement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sierra E Retirement 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 Sierra E. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sierra E Retirement has no effect on the direction of Strategic Allocation i.e., Strategic Allocation and Sierra E go up and down completely randomly.

Pair Corralation between Strategic Allocation and Sierra E

Assuming the 90 days horizon Strategic Allocation Moderate is expected to generate 1.49 times more return on investment than Sierra E. However, Strategic Allocation is 1.49 times more volatile than Sierra E Retirement. It trades about 0.24 of its potential returns per unit of risk. Sierra E Retirement is currently generating about 0.17 per unit of risk. If you would invest  671.00  in Strategic Allocation Moderate on September 16, 2024 and sell it today you would earn a total of  12.00  from holding Strategic Allocation Moderate or generate 1.79% return on investment over 90 days.

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

Strategic Allocation Moderate  vs.  Sierra E Retirement

Strategic Allocation

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Strategic Allocation Moderate are ranked lower than 7 (%) 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.

Sierra E Retirement

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sierra E Retirement has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Sierra E 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 Sierra E

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

The idea behind Strategic Allocation Moderate and Sierra E Retirement 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.