Correlation Between Income Fund and Growth Fund
Can any of the company-specific risk be diversified away by investing in both Income Fund and Growth Fund 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 Income Fund and Growth Fund into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Income Fund Of and Growth Fund Of, you can compare the effects of market volatilities on Income Fund and Growth Fund 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 Income Fund with a short position of Growth Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Income Fund and Growth Fund.
Diversification Opportunities for Income Fund and Growth Fund
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Income and GROWTH is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Income Fund Of and Growth Fund Of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Growth Fund and Income 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 Income Fund Of are associated (or correlated) with Growth Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Growth Fund has no effect on the direction of Income Fund i.e., Income Fund and Growth Fund go up and down completely randomly.
Pair Corralation between Income Fund and Growth Fund
Assuming the 90 days horizon Income Fund is expected to generate 4.04 times less return on investment than Growth Fund. But when comparing it to its historical volatility, Income Fund Of is 2.34 times less risky than Growth Fund. It trades about 0.1 of its potential returns per unit of risk. Growth Fund Of is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 7,561 in Growth Fund Of on August 28, 2024 and sell it today you would earn a total of 271.00 from holding Growth Fund Of or generate 3.58% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Income Fund Of vs. Growth Fund Of
Performance |
| Timeline |
| Income Fund |
| Growth Fund |
Income Fund and Growth Fund Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Income Fund and Growth Fund
The main advantage of trading using opposite Income Fund and Growth Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Income Fund position performs unexpectedly, Growth Fund 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 Growth Fund will offset losses from the drop in Growth Fund's long position.| Income Fund vs. Capital Income Builder | Income Fund vs. Capital World Growth | Income Fund vs. American Balanced | Income Fund vs. American Funds Fundamental |
| Growth Fund vs. Short Term Government Fund | Growth Fund vs. John Hancock Government | Growth Fund vs. Blackrock Government Bond | Growth Fund vs. Us Government Securities |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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