Correlation Between Equity Growth and Value Fund
Can any of the company-specific risk be diversified away by investing in both Equity Growth and Value Fund 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 Value Fund 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 Value Fund A, you can compare the effects of market volatilities on Equity Growth and Value Fund 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 Value Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equity Growth and Value Fund.
Diversification Opportunities for Equity Growth and Value Fund
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Equity and Value is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Equity Growth Fund and Value Fund A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Value Fund A 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 Value Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Value Fund A has no effect on the direction of Equity Growth i.e., Equity Growth and Value Fund go up and down completely randomly.
Pair Corralation between Equity Growth and Value Fund
Assuming the 90 days horizon Equity Growth Fund is expected to generate 1.33 times more return on investment than Value Fund. However, Equity Growth is 1.33 times more volatile than Value Fund A. It trades about 0.15 of its potential returns per unit of risk. Value Fund A is currently generating about -0.1 per unit of risk. If you would invest 3,425 in Equity Growth Fund on September 14, 2024 and sell it today you would earn a total of 66.00 from holding Equity Growth Fund or generate 1.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Equity Growth Fund vs. Value Fund A
Performance |
| Timeline |
| Equity Growth |
| Value Fund A |
Equity Growth and Value Fund Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Equity Growth and Value Fund
The main advantage of trading using opposite Equity Growth and Value Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity Growth position performs unexpectedly, Value Fund 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 Value Fund will offset losses from the drop in Value Fund's long position.| Equity Growth vs. Income Growth Fund | Equity Growth vs. Equity Income Fund | Equity Growth vs. International Growth Fund | Equity Growth vs. Value Fund Investor |
| Value Fund vs. Value Fund Investor | Value Fund vs. Heritage Fund Investor | Value Fund vs. Equity Growth Fund | Value Fund vs. Mid Cap Value |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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