Correlation Between Rational Defensive and Us Government

Can any of the company-specific risk be diversified away by investing in both Rational Defensive and Us Government 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 Rational Defensive and Us Government into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Rational Defensive Growth and Us Government Securities, you can compare the effects of market volatilities on Rational Defensive and Us Government 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 Rational Defensive with a short position of Us Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rational Defensive and Us Government.

Diversification Opportunities for Rational Defensive and Us Government

-0.75

Correlation Coefficient

Rational Defensive  Us Government

Pay attention - limited upside

The 3 months correlation between Rational and CAUSX is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Rational Defensive Growth and Us Government Securities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Us Government Securities and Rational Defensive 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 Rational Defensive Growth are associated (or correlated) with Us Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Us Government Securities has no effect on the direction of Rational Defensive i.e., Rational Defensive and Us Government go up and down completely randomly.

Pair Corralation between Rational Defensive and Us Government

Assuming the 90 days horizon Rational Defensive Growth is expected to generate 3.38 times more return on investment than Us Government. However, Rational Defensive is 3.38 times more volatile than Us Government Securities. It trades about 0.09 of its potential returns per unit of risk. Us Government Securities is currently generating about 0.02 per unit of risk. If you would invest  2,547  in Rational Defensive Growth on September 3, 2024 and sell it today you would earn a total of  1,495  from holding Rational Defensive Growth or generate 58.7% return on investment over 90 days.

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

Rational Defensive Growth  vs.  Us Government Securities

Rational Defensive Growth

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rational Defensive Growth are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Rational Defensive showed solid returns over the last few months and may actually be approaching a breakup point.

Us Government Securities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Us Government Securities has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Us Government is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Rational Defensive and Us Government

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

The idea behind Rational Defensive Growth and Us Government Securities 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.