Correlation Between Defensive Market and Balanced Allocation

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

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

Diversification Opportunities for Defensive Market and Balanced Allocation

0.99

Correlation Coefficient

Defensive Market  Balanced Allocation

No risk reduction

The 3 months correlation between Defensive and Balanced is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Defensive Market Strategies and Balanced Allocation Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Balanced Allocation and Defensive Market 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 Defensive Market Strategies are associated (or correlated) with Balanced Allocation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Balanced Allocation has no effect on the direction of Defensive Market i.e., Defensive Market and Balanced Allocation go up and down completely randomly.

Pair Corralation between Defensive Market and Balanced Allocation

Assuming the 90 days horizon Defensive Market Strategies is expected to generate 1.36 times more return on investment than Balanced Allocation. However, Defensive Market is 1.36 times more volatile than Balanced Allocation Fund. It trades about 0.12 of its potential returns per unit of risk. Balanced Allocation Fund is currently generating about 0.14 per unit of risk. If you would invest  1,099  in Defensive Market Strategies on April 3, 2025 and sell it today you would earn a total of  83.00  from holding Defensive Market Strategies or generate 7.55% return on investment over 90 days.

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

Defensive Market Strategies  vs.  Balanced Allocation Fund

Defensive Market Str

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Defensive Market Strategies are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Defensive Market may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Balanced Allocation

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Balanced Allocation Fund are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Balanced Allocation may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Defensive Market and Balanced Allocation

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

The idea behind Defensive Market Strategies and Balanced Allocation 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.

Check out your portfolio center.

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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.