Correlation Between Scharf Fund and Kensington Defender

Can any of the company-specific risk be diversified away by investing in both Scharf Fund and Kensington Defender 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 Scharf Fund and Kensington Defender into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Scharf Fund Retail and Kensington Defender Institutional, you can compare the effects of market volatilities on Scharf Fund and Kensington Defender 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 Scharf Fund with a short position of Kensington Defender. Check out your portfolio center. Please also check ongoing floating volatility patterns of Scharf Fund and Kensington Defender.

Diversification Opportunities for Scharf Fund and Kensington Defender

0.67

Correlation Coefficient

Scharf Fund  Kensington Defender

Poor diversification

The 3 months correlation between Scharf and Kensington is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Scharf Fund Retail and Kensington Defender Institutio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kensington Defender and Scharf Fund 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 Scharf Fund Retail are associated (or correlated) with Kensington Defender. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kensington Defender has no effect on the direction of Scharf Fund i.e., Scharf Fund and Kensington Defender go up and down completely randomly.

Pair Corralation between Scharf Fund and Kensington Defender

Assuming the 90 days horizon Scharf Fund Retail is expected to under-perform the Kensington Defender. In addition to that, Scharf Fund is 1.88 times more volatile than Kensington Defender Institutional. It trades about -0.42 of its total potential returns per unit of risk. Kensington Defender Institutional is currently generating about -0.16 per unit of volatility. If you would invest  1,064  in Kensington Defender Institutional on September 23, 2024 and sell it today you would lose (23.00) from holding Kensington Defender Institutional or give up 2.16% of portfolio value over 90 days.

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

Scharf Fund Retail  vs.  Kensington Defender Institutio

Scharf Fund Retail

Risk-Adjusted Performance

0 of 100

Very Weak

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

Kensington Defender

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Scharf Fund and Kensington Defender

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

The idea behind Scharf Fund Retail and Kensington Defender Institutional 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.