Correlation Between Rational Defensive and Banking Fund

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

Diversification Opportunities for Rational Defensive and Banking Fund

0.65

Correlation Coefficient

Rational Defensive  Banking Fund

Poor diversification

The 3 months correlation between Rational and Banking is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Rational Defensive Growth and Banking Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banking Fund Class 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 Banking Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banking Fund Class has no effect on the direction of Rational Defensive i.e., Rational Defensive and Banking Fund go up and down completely randomly.

Pair Corralation between Rational Defensive and Banking Fund

Assuming the 90 days horizon Rational Defensive is expected to generate 1.34 times less return on investment than Banking Fund. But when comparing it to its historical volatility, Rational Defensive Growth is 1.51 times less risky than Banking Fund. It trades about 0.09 of its potential returns per unit of risk. Banking Fund Class is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  7,698  in Banking Fund Class on October 1, 2024 and sell it today you would earn a total of  1,251  from holding Banking Fund Class or generate 16.25% return on investment over 90 days.

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

Rational Defensive Growth  vs.  Banking Fund Class

Rational Defensive Growth

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rational Defensive Growth are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Rational Defensive may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Banking Fund Class

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Banking Fund Class are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward-looking signals, Banking Fund may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Rational Defensive and Banking Fund

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

The idea behind Rational Defensive Growth and Banking Fund Class 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.