Correlation Between Limited Term and Sierra Core

Can any of the company-specific risk be diversified away by investing in both Limited Term and Sierra Core 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 Limited Term and Sierra Core into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Limited Term Tax and Sierra E Retirement, you can compare the effects of market volatilities on Limited Term and Sierra Core 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 Limited Term with a short position of Sierra Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of Limited Term and Sierra Core.

Diversification Opportunities for Limited Term and Sierra Core

0.5

Correlation Coefficient

Limited Term  Sierra Core

Very weak diversification

The 3 months correlation between LIMITED and Sierra is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Limited Term Tax and Sierra E Retirement in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sierra E Retirement and Limited Term 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 Limited Term Tax are associated (or correlated) with Sierra Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sierra E Retirement has no effect on the direction of Limited Term i.e., Limited Term and Sierra Core go up and down completely randomly.

Pair Corralation between Limited Term and Sierra Core

Assuming the 90 days horizon Limited Term is expected to generate 4.65 times less return on investment than Sierra Core. But when comparing it to its historical volatility, Limited Term Tax is 1.77 times less risky than Sierra Core. It trades about 0.04 of its potential returns per unit of risk. Sierra E Retirement is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,248  in Sierra E Retirement on September 4, 2024 and sell it today you would earn a total of  42.00  from holding Sierra E Retirement or generate 1.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Limited Term Tax  vs.  Sierra E Retirement

Limited Term Tax

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Limited Term Tax are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Limited Term is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Sierra E Retirement

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sierra E Retirement are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Sierra Core is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Limited Term and Sierra Core

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

The idea behind Limited Term Tax and Sierra E Retirement 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.