Correlation Between Multimanager Lifestyle and Financial Industries
Can any of the company-specific risk be diversified away by investing in both Multimanager Lifestyle and Financial Industries 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 Multimanager Lifestyle and Financial Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Multimanager Lifestyle Balanced and Financial Industries Fund, you can compare the effects of market volatilities on Multimanager Lifestyle and Financial Industries 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 Multimanager Lifestyle with a short position of Financial Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Multimanager Lifestyle and Financial Industries.
Diversification Opportunities for Multimanager Lifestyle and Financial Industries
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Multimanager and Financial is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Multimanager Lifestyle Balance and Financial Industries Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Industries and Multimanager Lifestyle 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 Multimanager Lifestyle Balanced are associated (or correlated) with Financial Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Industries has no effect on the direction of Multimanager Lifestyle i.e., Multimanager Lifestyle and Financial Industries go up and down completely randomly.
Pair Corralation between Multimanager Lifestyle and Financial Industries
Assuming the 90 days horizon Multimanager Lifestyle is expected to generate 3.8 times less return on investment than Financial Industries. But when comparing it to its historical volatility, Multimanager Lifestyle Balanced is 4.67 times less risky than Financial Industries. It trades about 0.36 of its potential returns per unit of risk. Financial Industries Fund is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest 1,900 in Financial Industries Fund on September 1, 2024 and sell it today you would earn a total of 228.00 from holding Financial Industries Fund or generate 12.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Multimanager Lifestyle Balance vs. Financial Industries Fund
Performance |
| Timeline |
| Multimanager Lifestyle |
| Financial Industries |
Multimanager Lifestyle and Financial Industries Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Multimanager Lifestyle and Financial Industries
The main advantage of trading using opposite Multimanager Lifestyle and Financial Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Multimanager Lifestyle position performs unexpectedly, Financial Industries 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 Financial Industries will offset losses from the drop in Financial Industries' long position.The idea behind Multimanager Lifestyle Balanced and Financial Industries Fund 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.
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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