Correlation Between Income Growth and Equity Income
Can any of the company-specific risk be diversified away by investing in both Income Growth and Equity Income 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 Income 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 Income Fund, you can compare the effects of market volatilities on Income Growth and Equity Income 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 Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Income Growth and Equity Income.
Diversification Opportunities for Income Growth and Equity Income
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Income and Equity is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Income Growth Fund and Equity Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Income 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 Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Income has no effect on the direction of Income Growth i.e., Income Growth and Equity Income go up and down completely randomly.
Pair Corralation between Income Growth and Equity Income
Assuming the 90 days horizon Income Growth Fund is expected to generate 1.23 times more return on investment than Equity Income. However, Income Growth is 1.23 times more volatile than Equity Income Fund. It trades about 0.06 of its potential returns per unit of risk. Equity Income Fund is currently generating about 0.02 per unit of risk. If you would invest 3,069 in Income Growth Fund on August 25, 2024 and sell it today you would earn a total of 801.00 from holding Income Growth Fund or generate 26.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Income Growth Fund vs. Equity Income Fund
Performance |
| Timeline |
| Income Growth |
| Equity Income |
Income Growth and Equity Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Income Growth and Equity Income
The main advantage of trading using opposite Income Growth and Equity Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Income Growth position performs unexpectedly, Equity Income 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 Income will offset losses from the drop in Equity Income's long position.| Income Growth vs. International Growth Fund | Income Growth vs. Growth Fund Investor | Income Growth vs. Equity Income Fund | Income Growth vs. Ultra Fund Investor |
| Equity Income vs. Dws Government Money | Equity Income vs. T Rowe Price | Equity Income vs. Ab Impact Municipal | Equity Income vs. California High Yield Municipal |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
Other Complementary Tools
| Theme Ratings Determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance | |
| Portfolio Comparator Compare the composition, asset allocations and performance of any two portfolios in your account | |
| Headlines Timeline Stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity | |
| FinTech Suite Use AI to screen and filter profitable investment opportunities | |
| Portfolio Suggestion Get suggestions outside of your existing asset allocation including your own model portfolios |