Correlation Between Moderately Conservative and Salient Alternative

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

By analyzing existing cross correlation between Moderately Servative Balanced and Salient Alternative Beta, you can compare the effects of market volatilities on Moderately Conservative and Salient Alternative 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 Moderately Conservative with a short position of Salient Alternative. Check out your portfolio center. Please also check ongoing floating volatility patterns of Moderately Conservative and Salient Alternative.

Diversification Opportunities for Moderately Conservative and Salient Alternative

1.0

Correlation Coefficient

Moderately Conservative  Salient Alternative

No risk reduction

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

Pair Corralation between Moderately Conservative and Salient Alternative

Assuming the 90 days horizon Moderately Conservative is expected to generate 1.17 times less return on investment than Salient Alternative. But when comparing it to its historical volatility, Moderately Servative Balanced is 1.24 times less risky than Salient Alternative. It trades about 0.21 of its potential returns per unit of risk. Salient Alternative Beta is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,158  in Salient Alternative Beta on September 2, 2024 and sell it today you would earn a total of  84.00  from holding Salient Alternative Beta or generate 7.25% return on investment over 90 days.

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

Moderately Servative Balanced  vs.  Salient Alternative Beta

Moderately Conservative

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Moderately Servative Balanced are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Moderately Conservative is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Salient Alternative Beta

Risk-Adjusted Performance

15 of 100

Good

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

Pair Trading with Moderately Conservative and Salient Alternative

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

The idea behind Moderately Servative Balanced and Salient Alternative Beta 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.