Correlation Between Pro Blend and Equity Series

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

By analyzing existing cross correlation between Pro Blend Extended Term and Equity Series Class, you can compare the effects of market volatilities on Pro Blend and Equity Series 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 Pro Blend with a short position of Equity Series. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pro Blend and Equity Series.

Diversification Opportunities for Pro Blend and Equity Series

0.86

Correlation Coefficient

Pro Blend  Equity Series

Very poor diversification

The 3 months correlation between Pro and Equity is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Pro Blend Extended Term and Equity Series Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Series Class and Pro Blend 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 Pro Blend Extended Term are associated (or correlated) with Equity Series. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Series Class has no effect on the direction of Pro Blend i.e., Pro Blend and Equity Series go up and down completely randomly.

Pair Corralation between Pro Blend and Equity Series

Assuming the 90 days horizon Pro Blend Extended Term is expected to generate 0.59 times more return on investment than Equity Series. However, Pro Blend Extended Term is 1.69 times less risky than Equity Series. It trades about -0.2 of its potential returns per unit of risk. Equity Series Class is currently generating about -0.22 per unit of risk. If you would invest  1,892  in Pro Blend Extended Term on February 2, 2024 and sell it today you would lose (43.00) from holding Pro Blend Extended Term or give up 2.27% of portfolio value over 90 days.

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

Pro Blend Extended Term  vs.  Equity Series Class

Pro Blend Extended

Risk-Adjusted Performance

0 of 100

Very Weak

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

Equity Series Class

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Pro Blend and Equity Series

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

The idea behind Pro Blend Extended Term and Equity Series Class 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.