Correlation Between Permanent Portfolio and Aggressive Growth

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

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

Diversification Opportunities for Permanent Portfolio and Aggressive Growth

0.97

Correlation Coefficient

Permanent Portfolio  Aggressive Growth

Almost no diversification

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

Pair Corralation between Permanent Portfolio and Aggressive Growth

Assuming the 90 days horizon Permanent Portfolio is expected to generate 1.88 times less return on investment than Aggressive Growth. But when comparing it to its historical volatility, Permanent Portfolio Class is 2.24 times less risky than Aggressive Growth. It trades about 0.17 of its potential returns per unit of risk. Aggressive Growth Portfolio is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  7,060  in Aggressive Growth Portfolio on September 4, 2024 and sell it today you would earn a total of  3,938  from holding Aggressive Growth Portfolio or generate 55.78% return on investment over 90 days.

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

Permanent Portfolio Class  vs.  Aggressive Growth Portfolio

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.

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.

Pair Trading with Permanent Portfolio and Aggressive Growth

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

The idea behind Permanent Portfolio Class and Aggressive Growth Portfolio 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.