Correlation Between Intermediate Term and Rational Defensive

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

By analyzing existing cross correlation between Intermediate Term Bond Fund and Rational Defensive Growth, you can compare the effects of market volatilities on Intermediate Term and Rational Defensive 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 Intermediate Term with a short position of Rational Defensive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Intermediate Term and Rational Defensive.

Diversification Opportunities for Intermediate Term and Rational Defensive

-0.42

Correlation Coefficient

Intermediate Term  Rational Defensive

Very good diversification

The 3 months correlation between Intermediate and Rational is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Intermediate Term Bond Fund and Rational Defensive Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rational Defensive Growth and Intermediate Term 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 Intermediate Term Bond Fund are associated (or correlated) with Rational Defensive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rational Defensive Growth has no effect on the direction of Intermediate Term i.e., Intermediate Term and Rational Defensive go up and down completely randomly.

Pair Corralation between Intermediate Term and Rational Defensive

Assuming the 90 days horizon Intermediate Term Bond Fund is expected to under-perform the Rational Defensive. But the mutual fund apears to be less risky and, when comparing its historical volatility, Intermediate Term Bond Fund is 4.08 times less risky than Rational Defensive. The mutual fund trades about -0.25 of its potential returns per unit of risk. The Rational Defensive Growth is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  4,012  in Rational Defensive Growth on September 24, 2024 and sell it today you would earn a total of  18.00  from holding Rational Defensive Growth or generate 0.45% return on investment over 90 days.

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

Intermediate Term Bond Fund  vs.  Rational Defensive Growth

Intermediate Term Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Rational Defensive Growth

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Intermediate Term and Rational Defensive

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

The idea behind Intermediate Term Bond Fund and Rational Defensive Growth 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.