Correlation Between Income Growth and Equity Growth
Can any of the company-specific risk be diversified away by investing in both Income Growth and Equity Growth 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 Growth and Equity Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Income Growth Fund and Equity Growth Fund, you can compare the effects of market volatilities on Income Growth and Equity Growth 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 Growth with a short position of Equity Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Income Growth and Equity Growth.
Diversification Opportunities for Income Growth and Equity Growth
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Income and Equity is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Income Growth Fund and Equity Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Growth and Income 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 Income Growth Fund are associated (or correlated) with Equity Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Growth has no effect on the direction of Income Growth i.e., Income Growth and Equity Growth go up and down completely randomly.
Pair Corralation between Income Growth and Equity Growth
Assuming the 90 days horizon Income Growth is expected to generate 1.19 times less return on investment than Equity Growth. But when comparing it to its historical volatility, Income Growth Fund is 1.18 times less risky than Equity Growth. It trades about 0.1 of its potential returns per unit of risk. Equity Growth Fund is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 3,018 in Equity Growth Fund on August 24, 2024 and sell it today you would earn a total of 351.00 from holding Equity Growth Fund or generate 11.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Income Growth Fund vs. Equity Growth Fund
Performance |
| Timeline |
| Income Growth |
| Equity Growth |
Income Growth and Equity Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Income Growth and Equity Growth
The main advantage of trading using opposite Income Growth and Equity Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Income Growth position performs unexpectedly, Equity Growth 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 Equity Growth will offset losses from the drop in Equity Growth's long position.| Income Growth vs. Ultra Fund I | Income Growth vs. Value Fund I | Income Growth vs. Equity Growth Fund | Income Growth vs. International Growth Fund |
| Equity Growth vs. Income Growth Fund | Equity Growth vs. Equity Income Fund | Equity Growth vs. International Growth Fund | Equity Growth vs. Value Fund Investor |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
Other Complementary Tools
| Watchlist Optimization Optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm | |
| Global Markets Map Get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes | |
| Odds Of Bankruptcy Get analysis of equity chance of financial distress in the next 2 years | |
| Equity Valuation Check real value of public entities based on technical and fundamental data | |
| Financial Widgets Easily integrated Macroaxis content with over 30 different plug-and-play financial widgets |