Correlation Between Multimanager Lifestyle and Equity Income
Can any of the company-specific risk be diversified away by investing in both Multimanager Lifestyle and Equity Income 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 Equity Income 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 Equity Income Fund, you can compare the effects of market volatilities on Multimanager Lifestyle and Equity Income 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 Equity Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Multimanager Lifestyle and Equity Income.
Diversification Opportunities for Multimanager Lifestyle and Equity Income
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Multimanager and Equity is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Multimanager Lifestyle Balance and Equity Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Income 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 Equity Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Income has no effect on the direction of Multimanager Lifestyle i.e., Multimanager Lifestyle and Equity Income go up and down completely randomly.
Pair Corralation between Multimanager Lifestyle and Equity Income
Assuming the 90 days horizon Multimanager Lifestyle Balanced is expected to generate 0.71 times more return on investment than Equity Income. However, Multimanager Lifestyle Balanced is 1.41 times less risky than Equity Income. It trades about 0.09 of its potential returns per unit of risk. Equity Income Fund is currently generating about 0.06 per unit of risk. If you would invest 1,093 in Multimanager Lifestyle Balanced on September 14, 2024 and sell it today you would earn a total of 294.00 from holding Multimanager Lifestyle Balanced or generate 26.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Multimanager Lifestyle Balance vs. Equity Income Fund
Performance |
| Timeline |
| Multimanager Lifestyle |
| Equity Income |
Multimanager Lifestyle and Equity Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Multimanager Lifestyle and Equity Income
The main advantage of trading using opposite Multimanager Lifestyle and Equity Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Multimanager Lifestyle position performs unexpectedly, Equity Income 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 Income will offset losses from the drop in Equity Income's long position.The idea behind Multimanager Lifestyle Balanced and Equity Income 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.
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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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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