Correlation Between Moderate Balanced and Conservative Balanced

Can any of the company-specific risk be diversified away by investing in both Moderate Balanced and Conservative 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 Moderate Balanced and Conservative Balanced 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 Conservative Balanced Allocation, you can compare the effects of market volatilities on Moderate Balanced and Conservative 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 Moderate Balanced with a short position of Conservative Balanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Moderate Balanced and Conservative Balanced.

Diversification Opportunities for Moderate Balanced and Conservative Balanced

0.99

Correlation Coefficient

Moderate Balanced  Conservative Balanced

No risk reduction

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

Pair Corralation between Moderate Balanced and Conservative Balanced

Assuming the 90 days horizon Moderate Balanced Allocation is expected to under-perform the Conservative Balanced. In addition to that, Moderate Balanced is 1.57 times more volatile than Conservative Balanced Allocation. It trades about 0.0 of its total potential returns per unit of risk. Conservative Balanced Allocation is currently generating about 0.01 per unit of volatility. If you would invest  1,116  in Conservative Balanced Allocation on February 16, 2025 and sell it today you would earn a total of  4.00  from holding Conservative Balanced Allocation or generate 0.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Moderate Balanced Allocation  vs.  Conservative Balanced Allocati

Moderate Balanced

Risk-Adjusted Performance

Very Weak

Over the last 90 days Moderate Balanced Allocation has generated negative risk-adjusted returns adding no value to fund investors. 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.

Conservative Balanced

Risk-Adjusted Performance

Very Weak

Over the last 90 days Conservative Balanced Allocation has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Conservative Balanced 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 Conservative Balanced

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

The idea behind Moderate Balanced Allocation and Conservative 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.

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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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.