Correlation Between Balanced Allocation and Basic Materials
Can any of the company-specific risk be diversified away by investing in both Balanced Allocation and Basic Materials 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 Balanced Allocation and Basic Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Balanced Allocation Fund and Basic Materials Fund, you can compare the effects of market volatilities on Balanced Allocation and Basic Materials 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 Balanced Allocation with a short position of Basic Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Balanced Allocation and Basic Materials.
Diversification Opportunities for Balanced Allocation and Basic Materials
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Balanced and Basic is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Balanced Allocation Fund and Basic Materials Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Basic Materials and Balanced 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 Balanced Allocation Fund are associated (or correlated) with Basic Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Basic Materials has no effect on the direction of Balanced Allocation i.e., Balanced Allocation and Basic Materials go up and down completely randomly.
Pair Corralation between Balanced Allocation and Basic Materials
Assuming the 90 days horizon Balanced Allocation is expected to generate 1.6 times less return on investment than Basic Materials. But when comparing it to its historical volatility, Balanced Allocation Fund is 2.05 times less risky than Basic Materials. It trades about 0.32 of its potential returns per unit of risk. Basic Materials Fund is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 6,386 in Basic Materials Fund on April 13, 2025 and sell it today you would earn a total of 867.00 from holding Basic Materials Fund or generate 13.58% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Balanced Allocation Fund vs. Basic Materials Fund
Performance |
| Timeline |
| Balanced Allocation |
| Basic Materials |
Balanced Allocation and Basic Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Balanced Allocation and Basic Materials
The main advantage of trading using opposite Balanced Allocation and Basic Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Balanced Allocation position performs unexpectedly, Basic Materials 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 Basic Materials will offset losses from the drop in Basic Materials' long position.| Balanced Allocation vs. Balanced Fund Retail | Balanced Allocation vs. Balanced Fund Investor | Balanced Allocation vs. Balanced Strategy Fund | Balanced Allocation vs. Balanced Strategy Fund |
| Basic Materials vs. Harbor Small Cap | Basic Materials vs. United Kingdom Small | Basic Materials vs. Jhvit International Small | Basic Materials vs. Ab Small Cap |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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