Correlation Between Horizon Defensive and Horizon Active

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

By analyzing existing cross correlation between Horizon Defensive Equity and Horizon Active Risk, you can compare the effects of market volatilities on Horizon Defensive and Horizon Active 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 Horizon Defensive with a short position of Horizon Active. Check out your portfolio center. Please also check ongoing floating volatility patterns of Horizon Defensive and Horizon Active.

Diversification Opportunities for Horizon Defensive and Horizon Active

0.94

Correlation Coefficient

Horizon Defensive  Horizon Active

Almost no diversification

The 3 months correlation between Horizon and Horizon is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Horizon Defensive Equity and Horizon Active Risk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Horizon Active Risk and Horizon Defensive 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 Horizon Defensive Equity are associated (or correlated) with Horizon Active. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Horizon Active Risk has no effect on the direction of Horizon Defensive i.e., Horizon Defensive and Horizon Active go up and down completely randomly.

Pair Corralation between Horizon Defensive and Horizon Active

Assuming the 90 days horizon Horizon Defensive Equity is expected to under-perform the Horizon Active. But the mutual fund apears to be less risky and, when comparing its historical volatility, Horizon Defensive Equity is 1.19 times less risky than Horizon Active. The mutual fund trades about -0.29 of its potential returns per unit of risk. The Horizon Active Risk is currently generating about -0.25 of returns per unit of risk over similar time horizon. If you would invest  2,751  in Horizon Active Risk on September 30, 2024 and sell it today you would lose (309.00) from holding Horizon Active Risk or give up 11.23% of portfolio value over 90 days.

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

Horizon Defensive Equity  vs.  Horizon Active Risk

Horizon Defensive Equity

Risk-Adjusted Performance

0 of 100

Very Weak

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

Horizon Active Risk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Horizon Active Risk 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.

Pair Trading with Horizon Defensive and Horizon Active

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

The idea behind Horizon Defensive Equity and Horizon Active Risk 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.