Correlation Between Rational Defensive and Chase Growth

Can any of the company-specific risk be diversified away by investing in both Rational Defensive and Chase Growth 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 Chase Growth 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 Chase Growth Fund, you can compare the effects of market volatilities on Rational Defensive and Chase Growth 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 Chase Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rational Defensive and Chase Growth.

Diversification Opportunities for Rational Defensive and Chase Growth

0.98

Correlation Coefficient

Rational Defensive  Chase Growth

Almost no diversification

The 3 months correlation between Rational and Chase is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Rational Defensive Growth and Chase Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chase Growth 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 Chase Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chase Growth has no effect on the direction of Rational Defensive i.e., Rational Defensive and Chase Growth go up and down completely randomly.

Pair Corralation between Rational Defensive and Chase Growth

Assuming the 90 days horizon Rational Defensive is expected to generate 1.02 times less return on investment than Chase Growth. In addition to that, Rational Defensive is 1.06 times more volatile than Chase Growth Fund. It trades about 0.24 of its total potential returns per unit of risk. Chase Growth Fund is currently generating about 0.26 per unit of volatility. If you would invest  1,541  in Chase Growth Fund on September 2, 2024 and sell it today you would earn a total of  228.00  from holding Chase Growth Fund or generate 14.8% return on investment over 90 days.

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

Rational Defensive Growth  vs.  Chase Growth Fund

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.

Chase Growth

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Chase Growth Fund are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Chase Growth showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rational Defensive and Chase Growth

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

The idea behind Rational Defensive Growth and Chase Growth Fund 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.