Correlation Between Extended Market and Clarion Partners

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

By analyzing existing cross correlation between Extended Market Index and Clarion Partners Real, you can compare the effects of market volatilities on Extended Market and Clarion Partners 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 Extended Market with a short position of Clarion Partners. Check out your portfolio center. Please also check ongoing floating volatility patterns of Extended Market and Clarion Partners.

Diversification Opportunities for Extended Market and Clarion Partners

-0.57

Correlation Coefficient

Extended Market  Clarion Partners

Excellent diversification

The 3 months correlation between Extended and Clarion is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Extended Market Index and Clarion Partners Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clarion Partners Real and Extended Market 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 Extended Market Index are associated (or correlated) with Clarion Partners. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clarion Partners Real has no effect on the direction of Extended Market i.e., Extended Market and Clarion Partners go up and down completely randomly.

Pair Corralation between Extended Market and Clarion Partners

Assuming the 90 days horizon Extended Market Index is expected to generate 22.36 times more return on investment than Clarion Partners. However, Extended Market is 22.36 times more volatile than Clarion Partners Real. It trades about 0.12 of its potential returns per unit of risk. Clarion Partners Real is currently generating about 0.66 per unit of risk. If you would invest  2,092  in Extended Market Index on October 27, 2024 and sell it today you would earn a total of  43.00  from holding Extended Market Index or generate 2.06% return on investment over 90 days.

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

Extended Market Index  vs.  Clarion Partners Real

Extended Market Index

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Extended Market Index has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Clarion Partners Real

Risk-Adjusted Performance

36 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Clarion Partners Real are ranked lower than 36 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Clarion Partners is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Extended Market and Clarion Partners

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

The idea behind Extended Market Index and Clarion Partners Real 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.