Correlation Between Sierra Strategic and Sierra Tactical

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

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

Diversification Opportunities for Sierra Strategic and Sierra Tactical

0.36

Correlation Coefficient

Sierra Strategic  Sierra Tactical

Weak diversification

The 3 months correlation between Sierra and Sierra is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Sierra Strategic Income and Sierra Tactical Risk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sierra Tactical Risk and Sierra Strategic 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 Sierra Strategic Income are associated (or correlated) with Sierra Tactical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sierra Tactical Risk has no effect on the direction of Sierra Strategic i.e., Sierra Strategic and Sierra Tactical go up and down completely randomly.

Pair Corralation between Sierra Strategic and Sierra Tactical

Assuming the 90 days horizon Sierra Strategic Income is expected to under-perform the Sierra Tactical. But the mutual fund apears to be less risky and, when comparing its historical volatility, Sierra Strategic Income is 1.37 times less risky than Sierra Tactical. The mutual fund trades about -0.03 of its potential returns per unit of risk. The Sierra Tactical Risk is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,657  in Sierra Tactical Risk on September 5, 2024 and sell it today you would earn a total of  55.00  from holding Sierra Tactical Risk or generate 2.07% return on investment over 90 days.

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

Sierra Strategic Income  vs.  Sierra Tactical Risk

Sierra Strategic Income

Risk-Adjusted Performance

0 of 100

Very Weak

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

Sierra Tactical Risk

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sierra Tactical Risk are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Sierra Tactical is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sierra Strategic and Sierra Tactical

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

The idea behind Sierra Strategic Income and Sierra Tactical Risk 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.