Correlation Between Defensive Market and Equity Index
Can any of the company-specific risk be diversified away by investing in both Defensive Market and Equity Index 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 Defensive Market and Equity Index into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Defensive Market Strategies and Equity Index Investor, you can compare the effects of market volatilities on Defensive Market and Equity Index 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 Defensive Market with a short position of Equity Index. Check out your portfolio center. Please also check ongoing floating volatility patterns of Defensive Market and Equity Index.
Diversification Opportunities for Defensive Market and Equity Index
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Defensive and Equity is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Defensive Market Strategies and Equity Index Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Index Investor and Defensive 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 Defensive Market Strategies are associated (or correlated) with Equity Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Index Investor has no effect on the direction of Defensive Market i.e., Defensive Market and Equity Index go up and down completely randomly.
Pair Corralation between Defensive Market and Equity Index
Assuming the 90 days horizon Defensive Market is expected to generate 1.4 times less return on investment than Equity Index. But when comparing it to its historical volatility, Defensive Market Strategies is 1.77 times less risky than Equity Index. It trades about 0.2 of its potential returns per unit of risk. Equity Index Investor is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 5,943 in Equity Index Investor on August 28, 2024 and sell it today you would earn a total of 176.00 from holding Equity Index Investor or generate 2.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Defensive Market Strategies vs. Equity Index Investor
Performance |
| Timeline |
| Defensive Market Str |
| Equity Index Investor |
Defensive Market and Equity Index Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Defensive Market and Equity Index
The main advantage of trading using opposite Defensive Market and Equity Index positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Defensive Market position performs unexpectedly, Equity Index 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 Equity Index will offset losses from the drop in Equity Index's long position.| Defensive Market vs. Growth Allocation Fund | Defensive Market vs. Value Equity Institutional | Defensive Market vs. Value Equity Investor | Defensive Market vs. Guidestone Value Equity |
| Equity Index vs. Growth Equity Investor | Equity Index vs. Value Equity Investor | Equity Index vs. Small Cap Equity | Equity Index vs. International Equity Investor |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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