Correlation Between Value Equity and Defensive Market
Can any of the company-specific risk be diversified away by investing in both Value Equity and Defensive Market 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 Value Equity and Defensive Market into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Value Equity Institutional and Defensive Market Strategies, you can compare the effects of market volatilities on Value Equity and Defensive Market 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 Value Equity with a short position of Defensive Market. Check out your portfolio center. Please also check ongoing floating volatility patterns of Value Equity and Defensive Market.
Diversification Opportunities for Value Equity and Defensive Market
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Value and Defensive is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Value Equity Institutional and Defensive Market Strategies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Defensive Market Str and Value Equity 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 Value Equity Institutional are associated (or correlated) with Defensive Market. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Defensive Market Str has no effect on the direction of Value Equity i.e., Value Equity and Defensive Market go up and down completely randomly.
Pair Corralation between Value Equity and Defensive Market
Assuming the 90 days horizon Value Equity Institutional is expected to generate 2.11 times more return on investment than Defensive Market. However, Value Equity is 2.11 times more volatile than Defensive Market Strategies. It trades about 0.29 of its potential returns per unit of risk. Defensive Market Strategies is currently generating about 0.37 per unit of risk. If you would invest 1,632 in Value Equity Institutional on April 22, 2025 and sell it today you would earn a total of 273.00 from holding Value Equity Institutional or generate 16.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 98.41% |
| Values | Daily Returns |
Value Equity Institutional vs. Defensive Market Strategies
Performance |
| Timeline |
| Value Equity Institu |
| Defensive Market Str |
Value Equity and Defensive Market Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Value Equity and Defensive Market
The main advantage of trading using opposite Value Equity and Defensive Market positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Value Equity position performs unexpectedly, Defensive Market 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 Defensive Market will offset losses from the drop in Defensive Market's long position.| Value Equity vs. Growth Allocation Fund | Value Equity vs. Defensive Market Strategies | Value Equity vs. Defensive Market Strategies | Value Equity vs. Value Equity Investor |
| Defensive Market vs. Ab Value Fund | Defensive Market vs. T Rowe Price | Defensive Market vs. Small Cap Stock | Defensive Market vs. Rational Defensive Growth |
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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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