Correlation Between Horizon Defined and Horizon Defensive

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

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

Diversification Opportunities for Horizon Defined and Horizon Defensive

0.99

Correlation Coefficient

Horizon Defined  Horizon Defensive

No risk reduction

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

Pair Corralation between Horizon Defined and Horizon Defensive

Assuming the 90 days horizon Horizon Defined is expected to generate 1.63 times less return on investment than Horizon Defensive. But when comparing it to its historical volatility, Horizon Defined Risk is 2.06 times less risky than Horizon Defensive. It trades about 0.28 of its potential returns per unit of risk. Horizon Defensive Equity is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  3,003  in Horizon Defensive Equity on May 6, 2025 and sell it today you would earn a total of  254.00  from holding Horizon Defensive Equity or generate 8.46% return on investment over 90 days.

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

Horizon Defined Risk  vs.  Horizon Defensive Equity

Horizon Defined Risk

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Horizon Defined Risk are ranked lower than 22 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Horizon Defined is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Horizon Defensive Equity

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Horizon Defensive Equity are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Horizon Defensive may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Horizon Defined and Horizon Defensive

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

The idea behind Horizon Defined Risk and Horizon Defensive Equity 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.