Correlation Between Performance Trust and Plumb Equity

Can any of the company-specific risk be diversified away by investing in both Performance Trust and Plumb Equity 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 Performance Trust and Plumb Equity into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Performance Trust Strategic and Plumb Equity Fund, you can compare the effects of market volatilities on Performance Trust and Plumb Equity 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 Performance Trust with a short position of Plumb Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Performance Trust and Plumb Equity.

Diversification Opportunities for Performance Trust and Plumb Equity

-0.48

Correlation Coefficient

Performance Trust  Plumb Equity

Very good diversification

The 3 months correlation between Performance and Plumb is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Performance Trust Strategic and Plumb Equity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plumb Equity and Performance Trust 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 Performance Trust Strategic are associated (or correlated) with Plumb Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plumb Equity has no effect on the direction of Performance Trust i.e., Performance Trust and Plumb Equity go up and down completely randomly.

Pair Corralation between Performance Trust and Plumb Equity

Assuming the 90 days horizon Performance Trust is expected to generate 5.15 times less return on investment than Plumb Equity. But when comparing it to its historical volatility, Performance Trust Strategic is 3.23 times less risky than Plumb Equity. It trades about 0.07 of its potential returns per unit of risk. Plumb Equity Fund is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,774  in Plumb Equity Fund on September 14, 2024 and sell it today you would earn a total of  1,396  from holding Plumb Equity Fund or generate 78.69% return on investment over 90 days.

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

Performance Trust Strategic  vs.  Plumb Equity Fund

Performance Trust

Risk-Adjusted Performance

0 of 100

Very Weak

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

Plumb Equity

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Plumb Equity Fund are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Plumb Equity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Performance Trust and Plumb Equity

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

The idea behind Performance Trust Strategic and Plumb Equity Fund 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.