Correlation Between Common Stock and Pro Blend

Can any of the company-specific risk be diversified away by investing in both Common Stock and Pro Blend 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 Common Stock and Pro Blend into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Common Stock Fund and Pro Blend Extended Term, you can compare the effects of market volatilities on Common Stock and Pro Blend 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 Common Stock with a short position of Pro Blend. Check out your portfolio center. Please also check ongoing floating volatility patterns of Common Stock and Pro Blend.

Diversification Opportunities for Common Stock and Pro Blend

0.23

Correlation Coefficient

Common Stock  Pro Blend

Modest diversification

The 3 months correlation between Common and Pro is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Common Stock Fund and Pro Blend Extended Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pro Blend Extended and Common Stock 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 Common Stock Fund are associated (or correlated) with Pro Blend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pro Blend Extended has no effect on the direction of Common Stock i.e., Common Stock and Pro Blend go up and down completely randomly.

Pair Corralation between Common Stock and Pro Blend

Assuming the 90 days horizon Common Stock Fund is expected to generate 2.6 times more return on investment than Pro Blend. However, Common Stock is 2.6 times more volatile than Pro Blend Extended Term. It trades about 0.18 of its potential returns per unit of risk. Pro Blend Extended Term is currently generating about 0.05 per unit of risk. If you would invest  3,603  in Common Stock Fund on September 12, 2024 and sell it today you would earn a total of  430.00  from holding Common Stock Fund or generate 11.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Common Stock Fund  vs.  Pro Blend Extended Term

Common Stock

Risk-Adjusted Performance

14 of 100

Good

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

Pro Blend Extended

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pro Blend Extended Term are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Pro Blend is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Common Stock and Pro Blend

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

The idea behind Common Stock Fund and Pro Blend Extended Term 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.

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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.