Correlation Between Jensen Quality and Applied Finance
Can any of the company-specific risk be diversified away by investing in both Jensen Quality and Applied Finance 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 Quality and Applied Finance into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Jensen Quality Value and Applied Finance Explorer, you can compare the effects of market volatilities on Jensen Quality and Applied Finance 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 Quality with a short position of Applied Finance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Jensen Quality and Applied Finance.
Diversification Opportunities for Jensen Quality and Applied Finance
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Jensen and Applied is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Jensen Quality Value and Applied Finance Explorer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Finance Explorer and Jensen Quality 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 Jensen Quality Value are associated (or correlated) with Applied Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Finance Explorer has no effect on the direction of Jensen Quality i.e., Jensen Quality and Applied Finance go up and down completely randomly.
Pair Corralation between Jensen Quality and Applied Finance
Assuming the 90 days horizon Jensen Quality is expected to generate 2.04 times less return on investment than Applied Finance. But when comparing it to its historical volatility, Jensen Quality Value is 1.84 times less risky than Applied Finance. It trades about 0.06 of its potential returns per unit of risk. Applied Finance Explorer is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 1,600 in Applied Finance Explorer on August 26, 2024 and sell it today you would earn a total of 778.00 from holding Applied Finance Explorer or generate 48.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Jensen Quality Value vs. Applied Finance Explorer
Performance |
| Timeline |
| Jensen Quality Value |
| Applied Finance Explorer |
Jensen Quality and Applied Finance Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Jensen Quality and Applied Finance
The main advantage of trading using opposite Jensen Quality and Applied Finance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Jensen Quality position performs unexpectedly, Applied Finance 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 Applied Finance will offset losses from the drop in Applied Finance's long position.| Jensen Quality vs. Applied Finance Explorer | Jensen Quality vs. Smead Value Fund | Jensen Quality vs. Heartland Mid Cap | Jensen Quality vs. Madison Dividend Income |
| Applied Finance vs. Thrivent Small Cap | Applied Finance vs. Applied Finance Select | Applied Finance vs. Parnassus Endeavor Fund | Applied Finance vs. Queens Road 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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