Correlation Between Fulcrum Diversified and Steward Large
Can any of the company-specific risk be diversified away by investing in both Fulcrum Diversified and Steward Large 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 Fulcrum Diversified and Steward Large into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fulcrum Diversified Absolute and Steward Large Cap, you can compare the effects of market volatilities on Fulcrum Diversified and Steward Large 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 Fulcrum Diversified with a short position of Steward Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fulcrum Diversified and Steward Large.
Diversification Opportunities for Fulcrum Diversified and Steward Large
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Fulcrum and Steward is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Fulcrum Diversified Absolute and Steward Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steward Large Cap and Fulcrum Diversified 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 Fulcrum Diversified Absolute are associated (or correlated) with Steward Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steward Large Cap has no effect on the direction of Fulcrum Diversified i.e., Fulcrum Diversified and Steward Large go up and down completely randomly.
Pair Corralation between Fulcrum Diversified and Steward Large
Assuming the 90 days horizon Fulcrum Diversified is expected to generate 5.31 times less return on investment than Steward Large. But when comparing it to its historical volatility, Fulcrum Diversified Absolute is 2.0 times less risky than Steward Large. It trades about 0.05 of its potential returns per unit of risk. Steward Large Cap is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 2,528 in Steward Large Cap on September 12, 2024 and sell it today you would earn a total of 894.00 from holding Steward Large Cap or generate 35.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fulcrum Diversified Absolute vs. Steward Large Cap
Performance |
| Timeline |
| Fulcrum Diversified |
| Steward Large Cap |
Fulcrum Diversified and Steward Large Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fulcrum Diversified and Steward Large
The main advantage of trading using opposite Fulcrum Diversified and Steward Large positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fulcrum Diversified position performs unexpectedly, Steward Large 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 Steward Large will offset losses from the drop in Steward Large's long position.The idea behind Fulcrum Diversified Absolute and Steward Large Cap 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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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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