Correlation Between Medium Duration and Aggressive Allocation
Can any of the company-specific risk be diversified away by investing in both Medium Duration and Aggressive Allocation 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 Medium Duration and Aggressive Allocation into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Medium Duration Bond Investor and Aggressive Allocation Fund, you can compare the effects of market volatilities on Medium Duration and Aggressive Allocation 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 Medium Duration with a short position of Aggressive Allocation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Medium Duration and Aggressive Allocation.
Diversification Opportunities for Medium Duration and Aggressive Allocation
-0.55 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Medium and Aggressive is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Medium Duration Bond Investor and Aggressive Allocation Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aggressive Allocation and Medium Duration 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 Medium Duration Bond Investor are associated (or correlated) with Aggressive Allocation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aggressive Allocation has no effect on the direction of Medium Duration i.e., Medium Duration and Aggressive Allocation go up and down completely randomly.
Pair Corralation between Medium Duration and Aggressive Allocation
Assuming the 90 days horizon Medium Duration is expected to generate 4.22 times less return on investment than Aggressive Allocation. But when comparing it to its historical volatility, Medium Duration Bond Investor is 1.82 times less risky than Aggressive Allocation. It trades about 0.04 of its potential returns per unit of risk. Aggressive Allocation Fund is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 1,062 in Aggressive Allocation Fund on August 31, 2024 and sell it today you would earn a total of 308.00 from holding Aggressive Allocation Fund or generate 29.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Medium Duration Bond Investor vs. Aggressive Allocation Fund
Performance |
| Timeline |
| Medium Duration Bond |
| Aggressive Allocation |
Medium Duration and Aggressive Allocation Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Medium Duration and Aggressive Allocation
The main advantage of trading using opposite Medium Duration and Aggressive Allocation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Medium Duration position performs unexpectedly, Aggressive Allocation 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 Aggressive Allocation will offset losses from the drop in Aggressive Allocation's long position.| Medium Duration vs. Value Equity Investor | Medium Duration vs. Growth Equity Investor | Medium Duration vs. International Equity Investor | Medium Duration vs. Equity Index Investor |
| Aggressive Allocation vs. John Hancock Financial | Aggressive Allocation vs. Davis Financial Fund | Aggressive Allocation vs. Prudential Jennison Financial | Aggressive Allocation vs. Mesirow Financial Small |
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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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