Correlation Between Aggressive Growth and Permanent Portfolio

Can any of the company-specific risk be diversified away by investing in both Aggressive Growth and Permanent Portfolio 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 Aggressive Growth and Permanent Portfolio into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Aggressive Growth Portfolio and Permanent Portfolio Class, you can compare the effects of market volatilities on Aggressive Growth and Permanent Portfolio 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 Aggressive Growth with a short position of Permanent Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aggressive Growth and Permanent Portfolio.

Diversification Opportunities for Aggressive Growth and Permanent Portfolio

0.97

Correlation Coefficient

Aggressive Growth  Permanent Portfolio

Almost no diversification

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

Pair Corralation between Aggressive Growth and Permanent Portfolio

Assuming the 90 days horizon Aggressive Growth Portfolio is expected to generate 2.11 times more return on investment than Permanent Portfolio. However, Aggressive Growth is 2.11 times more volatile than Permanent Portfolio Class. It trades about 0.28 of its potential returns per unit of risk. Permanent Portfolio Class is currently generating about 0.27 per unit of risk. If you would invest  9,081  in Aggressive Growth Portfolio on September 4, 2024 and sell it today you would earn a total of  1,917  from holding Aggressive Growth Portfolio or generate 21.11% return on investment over 90 days.

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

Aggressive Growth Portfolio  vs.  Permanent Portfolio Class

Aggressive Growth

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aggressive Growth Portfolio are ranked lower than 21 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Aggressive Growth showed solid returns over the last few months and may actually be approaching a breakup point.

Permanent Portfolio Class

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Permanent Portfolio Class are ranked lower than 21 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical indicators, Permanent Portfolio may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Aggressive Growth and Permanent Portfolio

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

The idea behind Aggressive Growth Portfolio and Permanent Portfolio 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.