Correlation Between Sentinel Small and Touchstone Large

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

By analyzing existing cross correlation between Sentinel Small Pany and Touchstone Large Pany, you can compare the effects of market volatilities on Sentinel Small and Touchstone Large 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 Sentinel Small with a short position of Touchstone Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sentinel Small and Touchstone Large.

Diversification Opportunities for Sentinel Small and Touchstone Large

0.79

Correlation Coefficient

Sentinel Small  Touchstone Large

Poor diversification

The 3 months correlation between Sentinel and Touchstone is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Sentinel Small Pany and Touchstone Large Pany in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Touchstone Large Pany and Sentinel Small 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 Sentinel Small Pany are associated (or correlated) with Touchstone Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Touchstone Large Pany has no effect on the direction of Sentinel Small i.e., Sentinel Small and Touchstone Large go up and down completely randomly.

Pair Corralation between Sentinel Small and Touchstone Large

Assuming the 90 days horizon Sentinel Small Pany is expected to under-perform the Touchstone Large. But the mutual fund apears to be less risky and, when comparing its historical volatility, Sentinel Small Pany is 1.47 times less risky than Touchstone Large. The mutual fund trades about -0.16 of its potential returns per unit of risk. The Touchstone Large Pany is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  5,292  in Touchstone Large Pany on January 31, 2024 and sell it today you would lose (196.00) from holding Touchstone Large Pany or give up 3.7% of portfolio value over 90 days.

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

Sentinel Small Pany  vs.  Touchstone Large Pany

Sentinel Small Pany

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sentinel Small Pany are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Sentinel Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Touchstone Large Pany

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Touchstone Large Pany are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Touchstone Large may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Sentinel Small and Touchstone Large

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

The idea behind Sentinel Small Pany and Touchstone Large Pany 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.