Correlation Between Equity Growth and Total Market
Can any of the company-specific risk be diversified away by investing in both Equity Growth and Total Market 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 Total Market 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 Total Market Portfolio, you can compare the effects of market volatilities on Equity Growth and Total Market 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 Total Market. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equity Growth and Total Market.
Diversification Opportunities for Equity Growth and Total Market
0.37 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Equity and Total is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Equity Growth Fund and Total Market Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Total Market Portfolio 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 Total Market. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Total Market Portfolio has no effect on the direction of Equity Growth i.e., Equity Growth and Total Market go up and down completely randomly.
Pair Corralation between Equity Growth and Total Market
Assuming the 90 days horizon Equity Growth Fund is expected to generate 40.89 times more return on investment than Total Market. However, Equity Growth is 40.89 times more volatile than Total Market Portfolio. It trades about 0.04 of its potential returns per unit of risk. Total Market Portfolio is currently generating about 0.01 per unit of risk. If you would invest 2,241 in Equity Growth Fund on November 27, 2024 and sell it today you would earn a total of 1,161 from holding Equity Growth Fund or generate 51.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Equity Growth Fund vs. Total Market Portfolio
Performance |
| Timeline |
| Equity Growth |
| Total Market Portfolio |
Equity Growth and Total Market Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Equity Growth and Total Market
The main advantage of trading using opposite Equity Growth and Total Market positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity Growth position performs unexpectedly, Total Market 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 Total Market will offset losses from the drop in Total Market's long position.| Equity Growth vs. Hennessy Technology Fund | Equity Growth vs. Virtus Artificial Intelligence | Equity Growth vs. Vanguard Information Technology | Equity Growth vs. Allianzgi Technology Fund |
| Total Market vs. Edgewood Growth Fund | Total Market vs. Johcm International Select | Total Market vs. Invesco Senior Loan | Total Market vs. Doubleline Shiller Enhanced |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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