Correlation Between Rational Defensive and Rational Real

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

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

Diversification Opportunities for Rational Defensive and Rational Real

0.92

Correlation Coefficient

Rational Defensive  Rational Real

Almost no diversification

The 3 months correlation between Rational and Rational is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Rational Defensive Growth and Rational Real Strategies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rational Real Strategies and Rational Defensive 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 Rational Defensive Growth are associated (or correlated) with Rational Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rational Real Strategies has no effect on the direction of Rational Defensive i.e., Rational Defensive and Rational Real go up and down completely randomly.

Pair Corralation between Rational Defensive and Rational Real

Assuming the 90 days horizon Rational Defensive Growth is expected to generate 5.77 times more return on investment than Rational Real. However, Rational Defensive is 5.77 times more volatile than Rational Real Strategies. It trades about 0.13 of its potential returns per unit of risk. Rational Real Strategies is currently generating about 0.04 per unit of risk. If you would invest  3,625  in Rational Defensive Growth on September 14, 2024 and sell it today you would earn a total of  3,281  from holding Rational Defensive Growth or generate 90.51% return on investment over 90 days.

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

Rational Defensive Growth  vs.  Rational Real Strategies

Rational Defensive Growth

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rational Defensive Growth are ranked lower than 21 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Rational Defensive showed solid returns over the last few months and may actually be approaching a breakup point.

Rational Real Strategies

Risk-Adjusted Performance

30 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Rational Real Strategies are ranked lower than 30 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Rational Real is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Rational Defensive and Rational Real

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

The idea behind Rational Defensive Growth and Rational Real Strategies 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.