Correlation Between Target Retirement and Victory Diversified

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

By analyzing existing cross correlation between Target Retirement 2050 and Victory Diversified Stock, you can compare the effects of market volatilities on Target Retirement and Victory Diversified 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 Target Retirement with a short position of Victory Diversified. Check out your portfolio center. Please also check ongoing floating volatility patterns of Target Retirement and Victory Diversified.

Diversification Opportunities for Target Retirement and Victory Diversified

0.4

Correlation Coefficient

Target Retirement  Victory Diversified

Very weak diversification

The 3 months correlation between Target and Victory is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Target Retirement 2050 and Victory Diversified Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Victory Diversified Stock and Target Retirement 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 Target Retirement 2050 are associated (or correlated) with Victory Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Victory Diversified Stock has no effect on the direction of Target Retirement i.e., Target Retirement and Victory Diversified go up and down completely randomly.

Pair Corralation between Target Retirement and Victory Diversified

Assuming the 90 days horizon Target Retirement 2050 is expected to generate 0.49 times more return on investment than Victory Diversified. However, Target Retirement 2050 is 2.03 times less risky than Victory Diversified. It trades about -0.09 of its potential returns per unit of risk. Victory Diversified Stock is currently generating about -0.18 per unit of risk. If you would invest  1,439  in Target Retirement 2050 on December 5, 2024 and sell it today you would lose (56.00) from holding Target Retirement 2050 or give up 3.89% of portfolio value over 90 days.

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

Target Retirement 2050  vs.  Victory Diversified Stock

Target Retirement 2050

Risk-Adjusted Performance

Very Weak

Over the last 90 days Target Retirement 2050 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Target Retirement is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Victory Diversified Stock

Risk-Adjusted Performance

Very Weak

Over the last 90 days Victory Diversified Stock 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 technical and fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Target Retirement and Victory Diversified

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

The idea behind Target Retirement 2050 and Victory Diversified Stock 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.