Correlation Between Undiscovered Managers and Applied Finance
Can any of the company-specific risk be diversified away by investing in both Undiscovered Managers and Applied Finance 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 Undiscovered Managers and Applied Finance into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Undiscovered Managers Behavioral and Applied Finance Explorer, you can compare the effects of market volatilities on Undiscovered Managers and Applied Finance 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 Undiscovered Managers with a short position of Applied Finance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Undiscovered Managers and Applied Finance.
Diversification Opportunities for Undiscovered Managers and Applied Finance
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Undiscovered and Applied is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Undiscovered Managers Behavior and Applied Finance Explorer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Finance Explorer and Undiscovered Managers 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 Undiscovered Managers Behavioral are associated (or correlated) with Applied Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Finance Explorer has no effect on the direction of Undiscovered Managers i.e., Undiscovered Managers and Applied Finance go up and down completely randomly.
Pair Corralation between Undiscovered Managers and Applied Finance
Assuming the 90 days horizon Undiscovered Managers Behavioral is expected to generate 1.03 times more return on investment than Applied Finance. However, Undiscovered Managers is 1.03 times more volatile than Applied Finance Explorer. It trades about 0.28 of its potential returns per unit of risk. Applied Finance Explorer is currently generating about 0.26 per unit of risk. If you would invest 7,729 in Undiscovered Managers Behavioral on September 2, 2024 and sell it today you would earn a total of 699.00 from holding Undiscovered Managers Behavioral or generate 9.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Undiscovered Managers Behavior vs. Applied Finance Explorer
Performance |
| Timeline |
| Undiscovered Managers |
| Applied Finance Explorer |
Undiscovered Managers and Applied Finance Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Undiscovered Managers and Applied Finance
The main advantage of trading using opposite Undiscovered Managers and Applied Finance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Undiscovered Managers position performs unexpectedly, Applied Finance 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 Applied Finance will offset losses from the drop in Applied Finance's long position.The idea behind Undiscovered Managers Behavioral and Applied Finance Explorer 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.
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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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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