Correlation Between Disciplined Value and Pro Blend

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

By analyzing existing cross correlation between Disciplined Value Series and Pro Blend Extended Term, you can compare the effects of market volatilities on Disciplined Value and Pro Blend 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 Disciplined Value with a short position of Pro Blend. Check out your portfolio center. Please also check ongoing floating volatility patterns of Disciplined Value and Pro Blend.

Diversification Opportunities for Disciplined Value and Pro Blend

0.53

Correlation Coefficient

Disciplined Value  Pro Blend

Very weak diversification

The 3 months correlation between Disciplined and Pro is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Disciplined Value Series and Pro Blend Extended Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pro Blend Extended and Disciplined Value 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 Disciplined Value Series are associated (or correlated) with Pro Blend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pro Blend Extended has no effect on the direction of Disciplined Value i.e., Disciplined Value and Pro Blend go up and down completely randomly.

Pair Corralation between Disciplined Value and Pro Blend

Assuming the 90 days horizon Disciplined Value Series is expected to under-perform the Pro Blend. In addition to that, Disciplined Value is 1.63 times more volatile than Pro Blend Extended Term. It trades about -0.22 of its total potential returns per unit of risk. Pro Blend Extended Term is currently generating about -0.21 per unit of volatility. If you would invest  1,901  in Pro Blend Extended Term on February 2, 2024 and sell it today you would lose (44.00) from holding Pro Blend Extended Term or give up 2.31% of portfolio value over 90 days.

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

Disciplined Value Series  vs.  Pro Blend Extended Term

Disciplined Value Series

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Disciplined Value Series are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Disciplined Value is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pro Blend Extended

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pro Blend Extended Term has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Pro Blend is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Disciplined Value and Pro Blend

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

The idea behind Disciplined Value Series and Pro Blend Extended Term 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.