Correlation Between Aggressive Balanced and Financial Services

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

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

Diversification Opportunities for Aggressive Balanced and Financial Services

0.93

Correlation Coefficient

Aggressive Balanced  Financial Services

Almost no diversification

The 3 months correlation between Aggressive and Financial is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Aggressive Balanced Allocation and Financial Services Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Services and Aggressive Balanced 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 Aggressive Balanced Allocation are associated (or correlated) with Financial Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Services has no effect on the direction of Aggressive Balanced i.e., Aggressive Balanced and Financial Services go up and down completely randomly.

Pair Corralation between Aggressive Balanced and Financial Services

Assuming the 90 days horizon Aggressive Balanced is expected to generate 2.29 times less return on investment than Financial Services. But when comparing it to its historical volatility, Aggressive Balanced Allocation is 1.93 times less risky than Financial Services. It trades about 0.18 of its potential returns per unit of risk. Financial Services Portfolio is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1,095  in Financial Services Portfolio on August 15, 2024 and sell it today you would earn a total of  187.00  from holding Financial Services Portfolio or generate 17.08% return on investment over 90 days.

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

Aggressive Balanced Allocation  vs.  Financial Services Portfolio

Aggressive Balanced

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aggressive Balanced Allocation are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Aggressive Balanced may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Financial Services

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Services Portfolio are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Financial Services showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aggressive Balanced and Financial Services

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

The idea behind Aggressive Balanced Allocation and Financial Services Portfolio 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.