Correlation Between Moderate Balanced and Absolute Capital

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

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

Diversification Opportunities for Moderate Balanced and Absolute Capital

0.99

Correlation Coefficient

Moderate Balanced  Absolute Capital

No risk reduction

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

Pair Corralation between Moderate Balanced and Absolute Capital

Assuming the 90 days horizon Moderate Balanced Allocation is expected to generate 0.96 times more return on investment than Absolute Capital. However, Moderate Balanced Allocation is 1.05 times less risky than Absolute Capital. It trades about 0.2 of its potential returns per unit of risk. Absolute Capital Defender is currently generating about 0.15 per unit of risk. If you would invest  1,185  in Moderate Balanced Allocation on May 10, 2025 and sell it today you would earn a total of  64.00  from holding Moderate Balanced Allocation or generate 5.4% return on investment over 90 days.

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

Moderate Balanced Allocation  vs.  Absolute Capital Defender

Moderate Balanced

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Moderate Balanced Allocation are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Moderate Balanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Absolute Capital Defender

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Absolute Capital Defender are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Absolute Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Moderate Balanced and Absolute Capital

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

The idea behind Moderate Balanced Allocation and Absolute Capital Defender 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.