Correlation Between Strategic Allocation and Equity Income
Can any of the company-specific risk be diversified away by investing in both Strategic Allocation and Equity Income 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 Strategic Allocation and Equity Income into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Strategic Allocation Moderate and Equity Income Fund, you can compare the effects of market volatilities on Strategic Allocation and Equity Income 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 Strategic Allocation with a short position of Equity Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Strategic Allocation and Equity Income.
Diversification Opportunities for Strategic Allocation and Equity Income
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Strategic and Equity is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Strategic Allocation Moderate and Equity Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Income and Strategic Allocation 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 Strategic Allocation Moderate are associated (or correlated) with Equity Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Income has no effect on the direction of Strategic Allocation i.e., Strategic Allocation and Equity Income go up and down completely randomly.
Pair Corralation between Strategic Allocation and Equity Income
Assuming the 90 days horizon Strategic Allocation Moderate is expected to generate 0.9 times more return on investment than Equity Income. However, Strategic Allocation Moderate is 1.11 times less risky than Equity Income. It trades about 0.07 of its potential returns per unit of risk. Equity Income Fund is currently generating about 0.03 per unit of risk. If you would invest 567.00 in Strategic Allocation Moderate on September 1, 2024 and sell it today you would earn a total of 122.00 from holding Strategic Allocation Moderate or generate 21.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Strategic Allocation Moderate vs. Equity Income Fund
Performance |
| Timeline |
| Strategic Allocation |
| Equity Income |
Strategic Allocation and Equity Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Strategic Allocation and Equity Income
The main advantage of trading using opposite Strategic Allocation and Equity Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Strategic Allocation position performs unexpectedly, Equity Income 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 Equity Income will offset losses from the drop in Equity Income's long position.The idea behind Strategic Allocation Moderate and Equity Income Fund pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
| Equity Income vs. Mid Cap Value | Equity Income vs. American Balanced Fund | Equity Income vs. Small Cap Value | Equity Income vs. American Funds 2020 |
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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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