Correlation Between Balanced Allocation and Multifactor

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

By analyzing existing cross correlation between Balanced Allocation Fund and Multifactor Equity Fund, you can compare the effects of market volatilities on Balanced Allocation and Multifactor 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 Balanced Allocation with a short position of Multifactor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Balanced Allocation and Multifactor.

Diversification Opportunities for Balanced Allocation and Multifactor

0.96

Correlation Coefficient

Balanced Allocation  Multifactor

Almost no diversification

The 3 months correlation between Balanced and Multifactor is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Balanced Allocation Fund and Multifactor Equity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Multifactor Equity and Balanced Allocation 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 Balanced Allocation Fund are associated (or correlated) with Multifactor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Multifactor Equity has no effect on the direction of Balanced Allocation i.e., Balanced Allocation and Multifactor go up and down completely randomly.

Pair Corralation between Balanced Allocation and Multifactor

Assuming the 90 days horizon Balanced Allocation is expected to generate 1.84 times less return on investment than Multifactor. But when comparing it to its historical volatility, Balanced Allocation Fund is 1.95 times less risky than Multifactor. It trades about 0.26 of its potential returns per unit of risk. Multifactor Equity Fund is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  1,527  in Multifactor Equity Fund on May 21, 2025 and sell it today you would earn a total of  152.00  from holding Multifactor Equity Fund or generate 9.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.39%
Values	Daily Returns

Balanced Allocation Fund  vs.  Multifactor Equity Fund

Balanced Allocation

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Balanced Allocation Fund are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Balanced Allocation is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Multifactor Equity

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Multifactor Equity Fund are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Multifactor may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Balanced Allocation and Multifactor

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

The idea behind Balanced Allocation Fund and Multifactor Equity Fund 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.