Correlation Between Target Retirement and Foreign Value
Can any of the company-specific risk be diversified away by investing in both Target Retirement and Foreign Value 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 Target Retirement and Foreign Value into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Target Retirement 2040 and Foreign Value Fund, you can compare the effects of market volatilities on Target Retirement and Foreign Value 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 Target Retirement with a short position of Foreign Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Target Retirement and Foreign Value.
Diversification Opportunities for Target Retirement and Foreign Value
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Target and Foreign is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Target Retirement 2040 and Foreign Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Foreign Value and Target Retirement 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 Target Retirement 2040 are associated (or correlated) with Foreign Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Foreign Value has no effect on the direction of Target Retirement i.e., Target Retirement and Foreign Value go up and down completely randomly.
Pair Corralation between Target Retirement and Foreign Value
Assuming the 90 days horizon Target Retirement is expected to generate 1.1 times less return on investment than Foreign Value. But when comparing it to its historical volatility, Target Retirement 2040 is 1.2 times less risky than Foreign Value. It trades about 0.08 of its potential returns per unit of risk. Foreign Value Fund is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 912.00 in Foreign Value Fund on November 28, 2024 and sell it today you would earn a total of 245.00 from holding Foreign Value Fund or generate 26.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Target Retirement 2040 vs. Foreign Value Fund
Performance |
| Timeline |
| Target Retirement 2040 |
| Foreign Value |
Target Retirement and Foreign Value Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Target Retirement and Foreign Value
The main advantage of trading using opposite Target Retirement and Foreign Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Target Retirement position performs unexpectedly, Foreign Value 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 Foreign Value will offset losses from the drop in Foreign Value's long position.| Target Retirement vs. Inflation Linked Fixed Income | Target Retirement vs. Simt Multi Asset Inflation | Target Retirement vs. Lord Abbett Inflation | Target Retirement vs. Ab Bond Inflation |
| Foreign Value vs. T Rowe Price | Foreign Value vs. Transam Short Term Bond | Foreign Value vs. Alpine Ultra Short | Foreign Value vs. Fidelity Flex Servative |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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