Correlation Between Jensen Portfolio and Common Stock
Can any of the company-specific risk be diversified away by investing in both Jensen Portfolio and Common Stock 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 Jensen Portfolio and Common Stock into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Jensen Portfolio and Common Stock Fund, you can compare the effects of market volatilities on Jensen Portfolio and Common Stock 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 Jensen Portfolio with a short position of Common Stock. Check out your portfolio center. Please also check ongoing floating volatility patterns of Jensen Portfolio and Common Stock.
Diversification Opportunities for Jensen Portfolio and Common Stock
0.24 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Jensen and Common is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding The Jensen Portfolio and Common Stock Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Common Stock and Jensen Portfolio 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 The Jensen Portfolio are associated (or correlated) with Common Stock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Common Stock has no effect on the direction of Jensen Portfolio i.e., Jensen Portfolio and Common Stock go up and down completely randomly.
Pair Corralation between Jensen Portfolio and Common Stock
Assuming the 90 days horizon Jensen Portfolio is expected to generate 1.35 times less return on investment than Common Stock. But when comparing it to its historical volatility, The Jensen Portfolio is 1.28 times less risky than Common Stock. It trades about 0.29 of its potential returns per unit of risk. Common Stock Fund is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest 3,705 in Common Stock Fund on November 4, 2024 and sell it today you would earn a total of 166.00 from holding Common Stock Fund or generate 4.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Jensen Portfolio vs. Common Stock Fund
Performance |
| Timeline |
| Jensen Portfolio |
| Common Stock |
Jensen Portfolio and Common Stock Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Jensen Portfolio and Common Stock
The main advantage of trading using opposite Jensen Portfolio and Common Stock positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Jensen Portfolio position performs unexpectedly, Common Stock 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 Common Stock will offset losses from the drop in Common Stock's long position.| Jensen Portfolio vs. Clipper Fund Inc | Jensen Portfolio vs. Parnassus E Equity | Jensen Portfolio vs. Mairs Power Growth | Jensen Portfolio vs. Sound Shore Fund |
| Common Stock vs. Large Cap Fund | Common Stock vs. Madison Mid Cap | Common Stock vs. Royce Premier Fund | Common Stock vs. The Jensen Portfolio |
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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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