Correlation Between Equity Growth and New Economy
Can any of the company-specific risk be diversified away by investing in both Equity Growth 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 Equity Growth and New Economy 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 New Economy Fund, you can compare the effects of market volatilities on Equity Growth 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 Equity Growth with a short position of New Economy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equity Growth and New Economy.
Diversification Opportunities for Equity Growth and New Economy
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Equity and New is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Equity Growth Fund 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 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 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 Equity Growth i.e., Equity Growth and New Economy go up and down completely randomly.
Pair Corralation between Equity Growth and New Economy
Assuming the 90 days horizon Equity Growth Fund is expected to generate 0.77 times more return on investment than New Economy. However, Equity Growth Fund is 1.3 times less risky than New Economy. It trades about -0.25 of its potential returns per unit of risk. New Economy Fund is currently generating about -0.2 per unit of risk. If you would invest 3,469 in Equity Growth Fund on December 1, 2024 and sell it today you would lose (135.00) from holding Equity Growth Fund or give up 3.89% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Equity Growth Fund vs. New Economy Fund
Performance |
| Timeline |
| Equity Growth |
| New Economy Fund |
Equity Growth and New Economy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Equity Growth and New Economy
The main advantage of trading using opposite Equity Growth and New Economy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity Growth 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.| Equity Growth vs. Mid Cap Value | Equity Growth vs. Income Growth Fund | Equity Growth vs. Emerging Markets Fund | Equity Growth vs. Diversified Bond Fund |
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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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