Correlation Between Balanced Strategy and Target Retirement
Can any of the company-specific risk be diversified away by investing in both Balanced Strategy and Target Retirement 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 Balanced Strategy and Target Retirement into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Balanced Strategy Fund and Target Retirement 2040, you can compare the effects of market volatilities on Balanced Strategy and Target Retirement 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 Balanced Strategy with a short position of Target Retirement. Check out your portfolio center. Please also check ongoing floating volatility patterns of Balanced Strategy and Target Retirement.
Diversification Opportunities for Balanced Strategy and Target Retirement
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Balanced and Target is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Balanced Strategy Fund and Target Retirement 2040 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target Retirement 2040 and Balanced Strategy 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 Balanced Strategy Fund are associated (or correlated) with Target Retirement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target Retirement 2040 has no effect on the direction of Balanced Strategy i.e., Balanced Strategy and Target Retirement go up and down completely randomly.
Pair Corralation between Balanced Strategy and Target Retirement
Assuming the 90 days horizon Balanced Strategy Fund is expected to generate 0.71 times more return on investment than Target Retirement. However, Balanced Strategy Fund is 1.41 times less risky than Target Retirement. It trades about -0.12 of its potential returns per unit of risk. Target Retirement 2040 is currently generating about -0.15 per unit of risk. If you would invest 1,044 in Balanced Strategy Fund on October 17, 2024 and sell it today you would lose (19.00) from holding Balanced Strategy Fund or give up 1.82% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Balanced Strategy Fund vs. Target Retirement 2040
Performance |
| Timeline |
| Balanced Strategy |
| Target Retirement 2040 |
Balanced Strategy and Target Retirement Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Balanced Strategy and Target Retirement
The main advantage of trading using opposite Balanced Strategy and Target Retirement positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Balanced Strategy position performs unexpectedly, Target Retirement 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 Target Retirement will offset losses from the drop in Target Retirement's long position.| Balanced Strategy vs. Maryland Tax Free Bond | Balanced Strategy vs. Alliancebernstein Bond | Balanced Strategy vs. Enhanced Fixed Income | Balanced Strategy vs. Morningstar Defensive Bond |
| Target Retirement vs. Balanced Strategy Fund | Target Retirement vs. Alphacentric Symmetry Strategy | Target Retirement vs. Delaware Emerging Markets | Target Retirement vs. Black Oak Emerging |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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