Correlation Between Target Retirement and Blackrock Moderate

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

By analyzing existing cross correlation between Target Retirement 2040 and Blackrock Moderate Prepared, you can compare the effects of market volatilities on Target Retirement and Blackrock Moderate 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 Target Retirement with a short position of Blackrock Moderate. Check out your portfolio center. Please also check ongoing floating volatility patterns of Target Retirement and Blackrock Moderate.

Diversification Opportunities for Target Retirement and Blackrock Moderate

0.83

Correlation Coefficient

Target Retirement  Blackrock Moderate

Very poor diversification

The 3 months correlation between Target and Blackrock is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Target Retirement 2040 and Blackrock Moderate Prepared in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Blackrock Moderate and Target Retirement 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 Target Retirement 2040 are associated (or correlated) with Blackrock Moderate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Blackrock Moderate has no effect on the direction of Target Retirement i.e., Target Retirement and Blackrock Moderate go up and down completely randomly.

Pair Corralation between Target Retirement and Blackrock Moderate

Assuming the 90 days horizon Target Retirement 2040 is expected to generate 1.54 times more return on investment than Blackrock Moderate. However, Target Retirement is 1.54 times more volatile than Blackrock Moderate Prepared. It trades about 0.13 of its potential returns per unit of risk. Blackrock Moderate Prepared is currently generating about 0.1 per unit of risk. If you would invest  1,334  in Target Retirement 2040 on September 2, 2024 and sell it today you would earn a total of  57.00  from holding Target Retirement 2040 or generate 4.27% return on investment over 90 days.

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

Target Retirement 2040  vs.  Blackrock Moderate Prepared

Target Retirement 2040

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Target Retirement 2040 are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Target Retirement is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Blackrock Moderate

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Blackrock Moderate Prepared are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Blackrock Moderate is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Target Retirement and Blackrock Moderate

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

The idea behind Target Retirement 2040 and Blackrock Moderate Prepared 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.