Correlation Between Scout Mid and Scout Core

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

By analyzing existing cross correlation between Scout Mid Cap and Scout E Bond, you can compare the effects of market volatilities on Scout Mid and Scout Core 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 Scout Mid with a short position of Scout Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of Scout Mid and Scout Core.

Diversification Opportunities for Scout Mid and Scout Core

0.51

Correlation Coefficient

Scout Mid  Scout Core

Very weak diversification

The 3 months correlation between SCOUT and Scout is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Scout Mid Cap and Scout E Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scout E Bond and Scout Mid 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 Scout Mid Cap are associated (or correlated) with Scout Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scout E Bond has no effect on the direction of Scout Mid i.e., Scout Mid and Scout Core go up and down completely randomly.

Pair Corralation between Scout Mid and Scout Core

Assuming the 90 days horizon Scout Mid Cap is expected to under-perform the Scout Core. In addition to that, Scout Mid is 6.01 times more volatile than Scout E Bond. It trades about -0.15 of its total potential returns per unit of risk. Scout E Bond is currently generating about 0.03 per unit of volatility. If you would invest  1,074  in Scout E Bond on November 28, 2024 and sell it today you would earn a total of  5.00  from holding Scout E Bond or generate 0.47% return on investment over 90 days.

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

Scout Mid Cap  vs.  Scout E Bond

Scout Mid Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Scout Mid Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's primary indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Scout E Bond

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Scout E Bond are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Scout Core is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Scout Mid and Scout Core

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

The idea behind Scout Mid Cap and Scout E Bond 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.