Correlation Between Equity Series and Disciplined Value

Can any of the company-specific risk be diversified away by investing in both Equity Series and Disciplined 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 Equity Series and Disciplined Value into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Equity Series Class and Disciplined Value Series, you can compare the effects of market volatilities on Equity Series and Disciplined 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 Equity Series with a short position of Disciplined Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equity Series and Disciplined Value.

Diversification Opportunities for Equity Series and Disciplined Value

0.91

Correlation Coefficient

Equity Series  Disciplined Value

Almost no diversification

The 3 months correlation between Equity and DISCIPLINED is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Equity Series Class and Disciplined Value Series in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Disciplined Value Series and Equity Series 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 Equity Series Class are associated (or correlated) with Disciplined Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Disciplined Value Series has no effect on the direction of Equity Series i.e., Equity Series and Disciplined Value go up and down completely randomly.

Pair Corralation between Equity Series and Disciplined Value

Assuming the 90 days horizon Equity Series Class is expected to generate 0.9 times more return on investment than Disciplined Value. However, Equity Series Class is 1.11 times less risky than Disciplined Value. It trades about 0.18 of its potential returns per unit of risk. Disciplined Value Series is currently generating about 0.14 per unit of risk. If you would invest  1,576  in Equity Series Class on September 5, 2024 and sell it today you would earn a total of  125.00  from holding Equity Series Class or generate 7.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Equity Series Class  vs.  Disciplined Value Series

Equity Series Class

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Equity Series Class are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Equity Series may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Disciplined Value Series

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Disciplined Value Series are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Disciplined Value may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Equity Series and Disciplined Value

The main advantage of trading using opposite Equity Series and Disciplined Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity Series position performs unexpectedly, Disciplined 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 Disciplined Value will offset losses from the drop in Disciplined Value's long position.

The idea behind Equity Series Class and Disciplined Value Series 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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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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.