Correlation Between Moderate Balanced and Aggressive Balanced

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

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

Diversification Opportunities for Moderate Balanced and Aggressive Balanced

1.0

Correlation Coefficient

Moderate Balanced  Aggressive Balanced

No risk reduction

The 3 months correlation between Moderate and Aggressive is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Moderate Balanced Allocation and Aggressive Balanced Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aggressive Balanced and Moderate Balanced 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 Moderate Balanced Allocation are associated (or correlated) with Aggressive Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aggressive Balanced has no effect on the direction of Moderate Balanced i.e., Moderate Balanced and Aggressive Balanced go up and down completely randomly.

Pair Corralation between Moderate Balanced and Aggressive Balanced

Assuming the 90 days horizon Moderate Balanced is expected to generate 1.21 times less return on investment than Aggressive Balanced. But when comparing it to its historical volatility, Moderate Balanced Allocation is 1.2 times less risky than Aggressive Balanced. It trades about 0.1 of its potential returns per unit of risk. Aggressive Balanced Allocation is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,026  in Aggressive Balanced Allocation on September 12, 2024 and sell it today you would earn a total of  232.00  from holding Aggressive Balanced Allocation or generate 22.61% return on investment over 90 days.

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

Moderate Balanced Allocation  vs.  Aggressive Balanced Allocation

Moderate Balanced

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Moderate Balanced Allocation are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Moderate Balanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Aggressive Balanced

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aggressive Balanced Allocation are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Aggressive Balanced may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Moderate Balanced and Aggressive Balanced

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

The idea behind Moderate Balanced Allocation and Aggressive Balanced Allocation 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.