Correlation Between Equity Growth and Short Duration
Can any of the company-specific risk be diversified away by investing in both Equity Growth and Short Duration 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 Equity Growth and Short Duration into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Equity Growth Fund and Short Duration Strategic, you can compare the effects of market volatilities on Equity Growth and Short Duration 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 Equity Growth with a short position of Short Duration. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equity Growth and Short Duration.
Diversification Opportunities for Equity Growth and Short Duration
-0.37 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Equity and Short is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Equity Growth Fund and Short Duration Strategic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Duration Strategic and Equity Growth 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 Equity Growth Fund are associated (or correlated) with Short Duration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Duration Strategic has no effect on the direction of Equity Growth i.e., Equity Growth and Short Duration go up and down completely randomly.
Pair Corralation between Equity Growth and Short Duration
Assuming the 90 days horizon Equity Growth Fund is expected to generate 5.14 times more return on investment than Short Duration. However, Equity Growth is 5.14 times more volatile than Short Duration Strategic. It trades about 0.13 of its potential returns per unit of risk. Short Duration Strategic is currently generating about 0.15 per unit of risk. If you would invest 2,372 in Equity Growth Fund on August 31, 2024 and sell it today you would earn a total of 1,064 from holding Equity Growth Fund or generate 44.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Equity Growth Fund vs. Short Duration Strategic
Performance |
| Timeline |
| Equity Growth |
| Short Duration Strategic |
Equity Growth and Short Duration Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Equity Growth and Short Duration
The main advantage of trading using opposite Equity Growth and Short Duration positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity Growth position performs unexpectedly, Short Duration 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 Short Duration will offset losses from the drop in Short Duration's long position.| Equity Growth vs. Goldman Sachs Short Term | Equity Growth vs. Vanguard Institutional Short Term | Equity Growth vs. Sterling Capital Short | Equity Growth vs. Touchstone Ultra Short |
| Short Duration vs. Short Duration Fund | Short Duration vs. Strategic Income Fund | Short Duration vs. Short Duration Inflation | Short Duration vs. Sustainable Equity Fund |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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