Correlation Between Moderate Balanced and Aggressive Balanced
Can any of the company-specific risk be diversified away by investing in both Moderate Balanced and Aggressive Balanced 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 Moderate Balanced and Aggressive Balanced into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Moderate Balanced Allocation and Aggressive Balanced Allocation, you can compare the effects of market volatilities on Moderate Balanced and Aggressive Balanced 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 Moderate Balanced with a short position of Aggressive Balanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Moderate Balanced and Aggressive Balanced.
Diversification Opportunities for Moderate Balanced and Aggressive Balanced
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Moderate and Aggressive is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Moderate Balanced Allocation and Aggressive Balanced Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aggressive Balanced and Moderate Balanced 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 Moderate Balanced Allocation are associated (or correlated) with Aggressive Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aggressive Balanced has no effect on the direction of Moderate Balanced i.e., Moderate Balanced and Aggressive Balanced go up and down completely randomly.
Pair Corralation between Moderate Balanced and Aggressive Balanced
Assuming the 90 days horizon Moderate Balanced is expected to generate 1.28 times less return on investment than Aggressive Balanced. But when comparing it to its historical volatility, Moderate Balanced Allocation is 1.2 times less risky than Aggressive Balanced. It trades about 0.1 of its potential returns per unit of risk. Aggressive Balanced Allocation is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 984.00 in Aggressive Balanced Allocation on September 1, 2024 and sell it today you would earn a total of 273.00 from holding Aggressive Balanced Allocation or generate 27.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Moderate Balanced Allocation vs. Aggressive Balanced Allocation
Performance |
| Timeline |
| Moderate Balanced |
| Aggressive Balanced |
Moderate Balanced and Aggressive Balanced Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Moderate Balanced and Aggressive Balanced
The main advantage of trading using opposite Moderate Balanced and Aggressive Balanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Moderate Balanced position performs unexpectedly, Aggressive Balanced 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 Aggressive Balanced will offset losses from the drop in Aggressive Balanced's long position.| Moderate Balanced vs. Salient Alternative Beta | Moderate Balanced vs. Salient Alternative Beta | Moderate Balanced vs. Moderately Aggressive Balanced | Moderate Balanced vs. Salient Mlp Fund |
| Aggressive Balanced vs. Salient Alternative Beta | Aggressive Balanced vs. Salient Alternative Beta | Aggressive Balanced vs. Moderately Aggressive Balanced | Aggressive Balanced vs. Salient Mlp Fund |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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