Correlation Between Asset Allocation and Dynamic Allocation

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

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

Diversification Opportunities for Asset Allocation and Dynamic Allocation

0.97

Correlation Coefficient

Asset Allocation  Dynamic Allocation

Almost no diversification

The 3 months correlation between Asset and Dynamic is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Asset Allocation Fund and Dynamic Allocation Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dynamic Allocation and Asset Allocation 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 Asset Allocation Fund are associated (or correlated) with Dynamic Allocation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dynamic Allocation has no effect on the direction of Asset Allocation i.e., Asset Allocation and Dynamic Allocation go up and down completely randomly.

Pair Corralation between Asset Allocation and Dynamic Allocation

Assuming the 90 days horizon Asset Allocation Fund is expected to generate 1.04 times more return on investment than Dynamic Allocation. However, Asset Allocation is 1.04 times more volatile than Dynamic Allocation Fund. It trades about 0.24 of its potential returns per unit of risk. Dynamic Allocation Fund is currently generating about 0.18 per unit of risk. If you would invest  1,153  in Asset Allocation Fund on May 10, 2025 and sell it today you would earn a total of  77.00  from holding Asset Allocation Fund or generate 6.68% return on investment over 90 days.

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

Asset Allocation Fund  vs.  Dynamic Allocation Fund

Asset Allocation

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Asset Allocation Fund are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Asset Allocation may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Dynamic Allocation

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dynamic Allocation Fund are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Dynamic Allocation is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Asset Allocation and Dynamic Allocation

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

The idea behind Asset Allocation Fund and Dynamic Allocation Fund 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.