Correlation Between Strategic Asset and Equity Income

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

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

Diversification Opportunities for Strategic Asset and Equity Income

0.94

Correlation Coefficient

Strategic Asset  Equity Income

Almost no diversification

The 3 months correlation between Strategic and Equity is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Strategic Asset Management and Equity Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Income and Strategic Asset 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 Strategic Asset Management are associated (or correlated) with Equity Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Income has no effect on the direction of Strategic Asset i.e., Strategic Asset and Equity Income go up and down completely randomly.

Pair Corralation between Strategic Asset and Equity Income

Assuming the 90 days horizon Strategic Asset is expected to generate 1.08 times less return on investment than Equity Income. But when comparing it to its historical volatility, Strategic Asset Management is 1.24 times less risky than Equity Income. It trades about 0.22 of its potential returns per unit of risk. Equity Income Fund is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  4,210  in Equity Income Fund on September 8, 2024 and sell it today you would earn a total of  323.00  from holding Equity Income Fund or generate 7.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.46%
Values	Daily Returns

Strategic Asset Management  vs.  Equity Income Fund

Strategic Asset Mana

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Strategic Asset Management are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Strategic Asset may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Equity Income

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Equity Income Fund are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Equity Income may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Strategic Asset and Equity Income

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

The idea behind Strategic Asset Management and Equity Income 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.