Correlation Between Moderately Aggressive and Moderate Balanced

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

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

Diversification Opportunities for Moderately Aggressive and Moderate Balanced

0.65

Correlation Coefficient

Moderately Aggressive  Moderate Balanced

Poor diversification

The 3 months correlation between Moderately and Moderate is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Moderately Aggressive Balanced and Moderate Balanced Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Moderate Balanced and Moderately Aggressive 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 Moderately Aggressive Balanced are associated (or correlated) with Moderate Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Moderate Balanced has no effect on the direction of Moderately Aggressive i.e., Moderately Aggressive and Moderate Balanced go up and down completely randomly.

Pair Corralation between Moderately Aggressive and Moderate Balanced

Assuming the 90 days horizon Moderately Aggressive Balanced is expected to generate 1.05 times more return on investment than Moderate Balanced. However, Moderately Aggressive is 1.05 times more volatile than Moderate Balanced Allocation. It trades about 0.36 of its potential returns per unit of risk. Moderate Balanced Allocation is currently generating about 0.37 per unit of risk. If you would invest  1,118  in Moderately Aggressive Balanced on April 22, 2025 and sell it today you would earn a total of  140.00  from holding Moderately Aggressive Balanced or generate 12.52% return on investment over 90 days.

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

Moderately Aggressive Balanced  vs.  Moderate Balanced Allocation

Moderately Aggressive

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Moderately Aggressive Balanced are ranked lower than 28 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Moderately Aggressive may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Moderate Balanced

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Moderate Balanced Allocation are ranked lower than 28 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Moderate Balanced may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Moderately Aggressive and Moderate Balanced

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

The idea behind Moderately Aggressive Balanced and Moderate Balanced Allocation 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.