Correlation Between Multimanager Lifestyle and Rational Defensive
Can any of the company-specific risk be diversified away by investing in both Multimanager Lifestyle and Rational Defensive 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 Rational Defensive into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Multimanager Lifestyle Growth and Rational Defensive Growth, you can compare the effects of market volatilities on Multimanager Lifestyle and Rational Defensive 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 Rational Defensive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Multimanager Lifestyle and Rational Defensive.
Diversification Opportunities for Multimanager Lifestyle and Rational Defensive
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Multimanager and Rational is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Multimanager Lifestyle Growth and Rational Defensive Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rational Defensive Growth 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 Growth are associated (or correlated) with Rational Defensive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rational Defensive Growth has no effect on the direction of Multimanager Lifestyle i.e., Multimanager Lifestyle and Rational Defensive go up and down completely randomly.
Pair Corralation between Multimanager Lifestyle and Rational Defensive
Assuming the 90 days horizon Multimanager Lifestyle is expected to generate 1.93 times less return on investment than Rational Defensive. But when comparing it to its historical volatility, Multimanager Lifestyle Growth is 1.63 times less risky than Rational Defensive. It trades about 0.32 of its potential returns per unit of risk. Rational Defensive Growth is currently generating about 0.38 of returns per unit of risk over similar time horizon. If you would invest 3,779 in Rational Defensive Growth on September 2, 2024 and sell it today you would earn a total of 263.00 from holding Rational Defensive Growth or generate 6.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Multimanager Lifestyle Growth vs. Rational Defensive Growth
Performance |
| Timeline |
| Multimanager Lifestyle |
| Rational Defensive Growth |
Multimanager Lifestyle and Rational Defensive Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Multimanager Lifestyle and Rational Defensive
The main advantage of trading using opposite Multimanager Lifestyle and Rational Defensive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Multimanager Lifestyle position performs unexpectedly, Rational Defensive 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 Rational Defensive will offset losses from the drop in Rational Defensive's long position.The idea behind Multimanager Lifestyle Growth and Rational Defensive Growth 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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