Correlation Between Income Fund and New Economy
Can any of the company-specific risk be diversified away by investing in both Income Fund and New Economy 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 New Economy 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 New Economy Fund, you can compare the effects of market volatilities on Income Fund and New Economy 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 New Economy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Income Fund and New Economy.
Diversification Opportunities for Income Fund and New Economy
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Income and New is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Income Fund Of and New Economy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Economy 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 New Economy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Economy Fund has no effect on the direction of Income Fund i.e., Income Fund and New Economy go up and down completely randomly.
Pair Corralation between Income Fund and New Economy
Assuming the 90 days horizon Income Fund is expected to generate 1.08 times less return on investment than New Economy. But when comparing it to its historical volatility, Income Fund Of is 2.23 times less risky than New Economy. It trades about 0.15 of its potential returns per unit of risk. New Economy Fund is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 5,821 in New Economy Fund on August 24, 2024 and sell it today you would earn a total of 545.00 from holding New Economy Fund or generate 9.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Income Fund Of vs. New Economy Fund
Performance |
| Timeline |
| Income Fund |
| New Economy Fund |
Income Fund and New Economy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Income Fund and New Economy
The main advantage of trading using opposite Income Fund and New Economy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Income Fund position performs unexpectedly, New Economy 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 New Economy will offset losses from the drop in New Economy's long position.| Income Fund vs. Dodge Cox Stock | Income Fund vs. Tax Managed Large Cap | Income Fund vs. T Rowe Price | Income Fund vs. Enhanced Large Pany |
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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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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