Correlation Between Fundamental Large and Rational Defensive

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

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

Diversification Opportunities for Fundamental Large and Rational Defensive

0.97

Correlation Coefficient

Fundamental Large  Rational Defensive

Almost no diversification

The 3 months correlation between Fundamental and Rational is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Fundamental Large Cap and Rational Defensive Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rational Defensive Growth and Fundamental Large 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 Fundamental Large Cap are associated (or correlated) with Rational Defensive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rational Defensive Growth has no effect on the direction of Fundamental Large i.e., Fundamental Large and Rational Defensive go up and down completely randomly.

Pair Corralation between Fundamental Large and Rational Defensive

Assuming the 90 days horizon Fundamental Large is expected to generate 1.6 times less return on investment than Rational Defensive. But when comparing it to its historical volatility, Fundamental Large Cap is 1.25 times less risky than Rational Defensive. It trades about 0.19 of its potential returns per unit of risk. Rational Defensive Growth is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  3,530  in Rational Defensive Growth on September 3, 2024 and sell it today you would earn a total of  512.00  from holding Rational Defensive Growth or generate 14.5% return on investment over 90 days.

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

Fundamental Large Cap  vs.  Rational Defensive Growth

Fundamental Large Cap

Risk-Adjusted Performance

14 of 100

Good

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

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.

Pair Trading with Fundamental Large and Rational Defensive

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

The idea behind Fundamental Large Cap and Rational Defensive Growth 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.