Correlation Between Target Retirement and Falcon Focus

Can any of the company-specific risk be diversified away by investing in both Target Retirement and Falcon Focus 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 Falcon Focus 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 Falcon Focus Scv, you can compare the effects of market volatilities on Target Retirement and Falcon Focus 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 Falcon Focus. Check out your portfolio center. Please also check ongoing floating volatility patterns of Target Retirement and Falcon Focus.

Diversification Opportunities for Target Retirement and Falcon Focus

0.0

Correlation Coefficient

Target Retirement  Falcon Focus

Pay attention - limited upside

The 3 months correlation between Target and Falcon is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Target Retirement 2040 and Falcon Focus Scv in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Falcon Focus Scv 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 Falcon Focus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Falcon Focus Scv has no effect on the direction of Target Retirement i.e., Target Retirement and Falcon Focus go up and down completely randomly.

Pair Corralation between Target Retirement and Falcon Focus

Assuming the 90 days horizon Target Retirement is expected to generate 1.78 times less return on investment than Falcon Focus. But when comparing it to its historical volatility, Target Retirement 2040 is 1.13 times less risky than Falcon Focus. It trades about 0.06 of its potential returns per unit of risk. Falcon Focus Scv is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  947.00  in Falcon Focus Scv on September 3, 2024 and sell it today you would earn a total of  368.00  from holding Falcon Focus Scv or generate 38.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Target Retirement 2040  vs.  Falcon Focus Scv

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.

Falcon Focus Scv

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Falcon Focus Scv has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Falcon Focus 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 Falcon Focus

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

The idea behind Target Retirement 2040 and Falcon Focus Scv 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.