Correlation Between Diversified Bond and Growth Fund
Can any of the company-specific risk be diversified away by investing in both Diversified Bond and Growth 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 Diversified Bond and Growth Fund into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Diversified Bond Fund and Growth Fund I, you can compare the effects of market volatilities on Diversified Bond and Growth 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 Diversified Bond with a short position of Growth Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diversified Bond and Growth Fund.
Diversification Opportunities for Diversified Bond and Growth Fund
0.51 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Diversified and Growth is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Diversified Bond Fund and Growth Fund I in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Growth Fund I and Diversified Bond 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 Diversified Bond Fund are associated (or correlated) with Growth Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Growth Fund I has no effect on the direction of Diversified Bond i.e., Diversified Bond and Growth Fund go up and down completely randomly.
Pair Corralation between Diversified Bond and Growth Fund
Assuming the 90 days horizon Diversified Bond is expected to generate 31.0 times less return on investment than Growth Fund. But when comparing it to its historical volatility, Diversified Bond Fund is 2.59 times less risky than Growth Fund. It trades about 0.01 of its potential returns per unit of risk. Growth Fund I is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 4,031 in Growth Fund I on October 23, 2024 and sell it today you would earn a total of 2,072 from holding Growth Fund I or generate 51.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Diversified Bond Fund vs. Growth Fund I
Performance |
| Timeline |
| Diversified Bond |
| Growth Fund I |
Diversified Bond and Growth Fund Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Diversified Bond and Growth Fund
The main advantage of trading using opposite Diversified Bond and Growth Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diversified Bond position performs unexpectedly, Growth 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 Growth Fund will offset losses from the drop in Growth Fund's long position.| Diversified Bond vs. Davis Financial Fund | Diversified Bond vs. Icon Financial Fund | Diversified Bond vs. Financial Industries Fund | Diversified Bond vs. T Rowe Price |
| Growth Fund vs. Mid Cap Value | Growth Fund vs. Equity Growth Fund | Growth Fund vs. Income Growth Fund | Growth Fund vs. Diversified Bond Fund |
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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