Correlation Between Madison Moderate and Chestnut Street
Can any of the company-specific risk be diversified away by investing in both Madison Moderate and Chestnut Street 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 Moderate and Chestnut Street into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Madison Moderate Allocation and Chestnut Street Exchange, you can compare the effects of market volatilities on Madison Moderate and Chestnut Street 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 Moderate with a short position of Chestnut Street. Check out your portfolio center. Please also check ongoing floating volatility patterns of Madison Moderate and Chestnut Street.
Diversification Opportunities for Madison Moderate and Chestnut Street
0.46 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Madison and Chestnut is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Madison Moderate Allocation and Chestnut Street Exchange in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chestnut Street Exchange and Madison Moderate 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 Moderate Allocation are associated (or correlated) with Chestnut Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chestnut Street Exchange has no effect on the direction of Madison Moderate i.e., Madison Moderate and Chestnut Street go up and down completely randomly.
Pair Corralation between Madison Moderate and Chestnut Street
Assuming the 90 days horizon Madison Moderate is expected to generate 1.72 times less return on investment than Chestnut Street. But when comparing it to its historical volatility, Madison Moderate Allocation is 1.6 times less risky than Chestnut Street. It trades about 0.12 of its potential returns per unit of risk. Chestnut Street Exchange is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 96,947 in Chestnut Street Exchange on September 4, 2024 and sell it today you would earn a total of 21,745 from holding Chestnut Street Exchange or generate 22.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Madison Moderate Allocation vs. Chestnut Street Exchange
Performance |
| Timeline |
| Madison Moderate All |
| Chestnut Street Exchange |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Solid
Madison Moderate and Chestnut Street Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Madison Moderate and Chestnut Street
The main advantage of trading using opposite Madison Moderate and Chestnut Street positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Madison Moderate position performs unexpectedly, Chestnut Street 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 Chestnut Street will offset losses from the drop in Chestnut Street's long position.| Madison Moderate vs. Goehring Rozencwajg Resources | Madison Moderate vs. Energy Basic Materials | Madison Moderate vs. Fidelity Advisor Energy | Madison Moderate vs. Firsthand Alternative Energy |
| Chestnut Street vs. Multimanager Lifestyle Aggressive | Chestnut Street vs. Morningstar Aggressive Growth | Chestnut Street vs. Calvert High Yield | Chestnut Street vs. Gmo High Yield |
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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