Correlation Between Aristotle International and Wilmington Intermediate-ter
Can any of the company-specific risk be diversified away by investing in both Aristotle International and Wilmington Intermediate-ter 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 Aristotle International and Wilmington Intermediate-ter into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Aristotle International Equity and Wilmington Intermediate Term Bond, you can compare the effects of market volatilities on Aristotle International and Wilmington Intermediate-ter 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 Aristotle International with a short position of Wilmington Intermediate-ter. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aristotle International and Wilmington Intermediate-ter.
Diversification Opportunities for Aristotle International and Wilmington Intermediate-ter
1.0 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Aristotle and Wilmington is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Aristotle International Equity and Wilmington Intermediate Term B in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wilmington Intermediate-ter and Aristotle International 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 Aristotle International Equity are associated (or correlated) with Wilmington Intermediate-ter. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wilmington Intermediate-ter has no effect on the direction of Aristotle International i.e., Aristotle International and Wilmington Intermediate-ter go up and down completely randomly.
Pair Corralation between Aristotle International and Wilmington Intermediate-ter
Assuming the 90 days horizon Aristotle International Equity is expected to generate 0.99 times more return on investment than Wilmington Intermediate-ter. However, Aristotle International Equity is 1.01 times less risky than Wilmington Intermediate-ter. It trades about -0.06 of its potential returns per unit of risk. Wilmington Intermediate Term Bond is currently generating about -0.07 per unit of risk. If you would invest 1,440 in Aristotle International Equity on August 30, 2024 and sell it today you would lose (17.00) from holding Aristotle International Equity or give up 1.18% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Aristotle International Equity vs. Wilmington Intermediate Term B
Performance |
| Timeline |
| Aristotle International |
| Wilmington Intermediate-ter |
Aristotle International and Wilmington Intermediate-ter Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Aristotle International and Wilmington Intermediate-ter
The main advantage of trading using opposite Aristotle International and Wilmington Intermediate-ter positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aristotle International position performs unexpectedly, Wilmington Intermediate-ter 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 Wilmington Intermediate-ter will offset losses from the drop in Wilmington Intermediate-ter's long position.The idea behind Aristotle International Equity and Wilmington Intermediate Term 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.
Check out your portfolio center.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.
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