Correlation Between Extended Market and Quantitative
Can any of the company-specific risk be diversified away by investing in both Extended Market and Quantitative 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 Extended Market and Quantitative into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Extended Market Index and Quantitative Longshort Equity, you can compare the effects of market volatilities on Extended Market and Quantitative 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 Extended Market with a short position of Quantitative. Check out your portfolio center. Please also check ongoing floating volatility patterns of Extended Market and Quantitative.
Diversification Opportunities for Extended Market and Quantitative
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Extended and Quantitative is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Extended Market Index and Quantitative Longshort Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quantitative Longshort and Extended Market 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 Extended Market Index are associated (or correlated) with Quantitative. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quantitative Longshort has no effect on the direction of Extended Market i.e., Extended Market and Quantitative go up and down completely randomly.
Pair Corralation between Extended Market and Quantitative
Assuming the 90 days horizon Extended Market Index is expected to generate 2.41 times more return on investment than Quantitative. However, Extended Market is 2.41 times more volatile than Quantitative Longshort Equity. It trades about 0.25 of its potential returns per unit of risk. Quantitative Longshort Equity is currently generating about 0.39 per unit of risk. If you would invest 2,327 in Extended Market Index on August 27, 2024 and sell it today you would earn a total of 163.00 from holding Extended Market Index or generate 7.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Extended Market Index vs. Quantitative Longshort Equity
Performance |
| Timeline |
| Extended Market Index |
| Quantitative Longshort |
Extended Market and Quantitative Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Extended Market and Quantitative
The main advantage of trading using opposite Extended Market and Quantitative positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Extended Market position performs unexpectedly, Quantitative 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 Quantitative will offset losses from the drop in Quantitative's long position.| Extended Market vs. Income Fund Income | Extended Market vs. Usaa Nasdaq 100 | Extended Market vs. Victory Diversified Stock | Extended Market vs. Intermediate Term Bond Fund |
| Quantitative vs. Morgan Stanley Institutional | Quantitative vs. Ab Value Fund | Quantitative vs. Omni Small Cap Value | Quantitative vs. Small Cap 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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