Correlation Between Sound Shore and Madison Investors
Can any of the company-specific risk be diversified away by investing in both Sound Shore and Madison Investors 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 Sound Shore and Madison Investors into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sound Shore Fund and Madison Investors Fund, you can compare the effects of market volatilities on Sound Shore and Madison Investors 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 Sound Shore with a short position of Madison Investors. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sound Shore and Madison Investors.
Diversification Opportunities for Sound Shore and Madison Investors
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Sound and Madison is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Sound Shore Fund and Madison Investors Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison Investors and Sound Shore 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 Sound Shore Fund are associated (or correlated) with Madison Investors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison Investors has no effect on the direction of Sound Shore i.e., Sound Shore and Madison Investors go up and down completely randomly.
Pair Corralation between Sound Shore and Madison Investors
Assuming the 90 days horizon Sound Shore Fund is expected to generate 1.04 times more return on investment than Madison Investors. However, Sound Shore is 1.04 times more volatile than Madison Investors Fund. It trades about 0.13 of its potential returns per unit of risk. Madison Investors Fund is currently generating about 0.11 per unit of risk. If you would invest 3,696 in Sound Shore Fund on August 29, 2024 and sell it today you would earn a total of 1,316 from holding Sound Shore Fund or generate 35.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sound Shore Fund vs. Madison Investors Fund
Performance |
| Timeline |
| Sound Shore Fund |
| Madison Investors |
Sound Shore and Madison Investors Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sound Shore and Madison Investors
The main advantage of trading using opposite Sound Shore and Madison Investors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sound Shore position performs unexpectedly, Madison Investors 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 Investors will offset losses from the drop in Madison Investors' long position.| Sound Shore vs. Bbh Intermediate Municipal | Sound Shore vs. Calamos Dynamic Convertible | Sound Shore vs. Vanguard High Yield Tax Exempt | Sound Shore vs. Blrc Sgy Mnp |
| Madison Investors vs. Vanguard Total Stock | Madison Investors vs. Vanguard 500 Index | Madison Investors vs. Vanguard Total Stock | Madison Investors vs. Vanguard Total Stock |
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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