Correlation Between Madison Aggressive and Madison Moderate
Can any of the company-specific risk be diversified away by investing in both Madison Aggressive and Madison Moderate 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 Madison Aggressive and Madison Moderate into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Madison Aggressive Allocation and Madison Moderate Allocation, you can compare the effects of market volatilities on Madison Aggressive and Madison Moderate 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 Madison Aggressive with a short position of Madison Moderate. Check out your portfolio center. Please also check ongoing floating volatility patterns of Madison Aggressive and Madison Moderate.
Diversification Opportunities for Madison Aggressive and Madison Moderate
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Madison and Madison is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Madison Aggressive Allocation and Madison Moderate Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison Moderate All and Madison Aggressive 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 Madison Aggressive Allocation are associated (or correlated) with Madison Moderate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison Moderate All has no effect on the direction of Madison Aggressive i.e., Madison Aggressive and Madison Moderate go up and down completely randomly.
Pair Corralation between Madison Aggressive and Madison Moderate
Assuming the 90 days horizon Madison Aggressive Allocation is expected to generate 1.3 times more return on investment than Madison Moderate. However, Madison Aggressive is 1.3 times more volatile than Madison Moderate Allocation. It trades about 0.03 of its potential returns per unit of risk. Madison Moderate Allocation is currently generating about 0.03 per unit of risk. If you would invest 1,090 in Madison Aggressive Allocation on December 11, 2024 and sell it today you would earn a total of 43.00 from holding Madison Aggressive Allocation or generate 3.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Madison Aggressive Allocation vs. Madison Moderate Allocation
Performance |
| Timeline |
| Madison Aggressive |
| Madison Moderate All |
Madison Aggressive and Madison Moderate Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Madison Aggressive and Madison Moderate
The main advantage of trading using opposite Madison Aggressive and Madison Moderate positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Madison Aggressive position performs unexpectedly, Madison Moderate 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 Madison Moderate will offset losses from the drop in Madison Moderate's long position.| Madison Aggressive vs. Hennessy Technology Fund | ||
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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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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