Can any of the company-specific risk be diversified away by investing in both Discipline Fund and Akros Monthly 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 Discipline Fund and Akros Monthly into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Discipline Fund ETF and Akros Monthly Payout, you can compare the effects of market volatilities on Discipline Fund and Akros Monthly 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 Discipline Fund with a short position of Akros Monthly. Check out your portfolio center. Please also check ongoing floating volatility patterns of Discipline Fund and Akros Monthly.
Diversification Opportunities for Discipline Fund and Akros Monthly
The 3 months correlation between Discipline and Akros is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Discipline Fund ETF and Akros Monthly Payout in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Akros Monthly Payout and Discipline Fund 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 Discipline Fund ETF are associated (or correlated) with Akros Monthly. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Akros Monthly Payout has no effect on the direction of Discipline Fund i.e., Discipline Fund and Akros Monthly go up and down completely randomly.
Pair Corralation between Discipline Fund and Akros Monthly
Given the investment horizon of 90 days Discipline Fund is expected to generate 3.84 times less return on investment than Akros Monthly. But when comparing it to its historical volatility, Discipline Fund ETF is 1.72 times less risky than Akros Monthly. It trades about 0.06 of its potential returns per unit of risk. Akros Monthly Payout is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 2,191 in Akros Monthly Payout on June 23, 2023 and sell it today you would earn a total of 36.00 from holding Akros Monthly Payout or generate 1.64% return on investment over 90 days.
Over the last 90 days Discipline Fund ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Discipline Fund is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.
Compared to the overall equity markets, risk-adjusted returns on investments in Akros Monthly Payout are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Akros Monthly is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.
Discipline Fund and Akros Monthly Volatility Contrast
Predicted Return Density
Pair Trading with Discipline Fund and Akros Monthly
The main advantage of trading using opposite Discipline Fund and Akros Monthly positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Discipline Fund position performs unexpectedly, Akros Monthly 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 Akros Monthly will offset losses from the drop in Akros Monthly's long position.
The idea behind Discipline Fund ETF and Akros Monthly Payout 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.
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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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