Correlation Between Equity Index and Growth Allocation
Can any of the company-specific risk be diversified away by investing in both Equity Index and Growth Allocation 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 Index and Growth Allocation into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Equity Index Investor and Growth Allocation Fund, you can compare the effects of market volatilities on Equity Index and Growth Allocation 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 Index with a short position of Growth Allocation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equity Index and Growth Allocation.
Diversification Opportunities for Equity Index and Growth Allocation
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Equity and Growth is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Equity Index Investor and Growth Allocation Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Growth Allocation and Equity Index 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 Index Investor are associated (or correlated) with Growth Allocation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Growth Allocation has no effect on the direction of Equity Index i.e., Equity Index and Growth Allocation go up and down completely randomly.
Pair Corralation between Equity Index and Growth Allocation
Assuming the 90 days horizon Equity Index Investor is expected to generate 1.59 times more return on investment than Growth Allocation. However, Equity Index is 1.59 times more volatile than Growth Allocation Fund. It trades about -0.1 of its potential returns per unit of risk. Growth Allocation Fund is currently generating about -0.17 per unit of risk. If you would invest 5,652 in Equity Index Investor on January 14, 2025 and sell it today you would lose (396.00) from holding Equity Index Investor or give up 7.01% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Equity Index Investor vs. Growth Allocation Fund
Performance |
| Timeline |
| Equity Index Investor |
| Growth Allocation |
Equity Index and Growth Allocation Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Equity Index and Growth Allocation
The main advantage of trading using opposite Equity Index and Growth Allocation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity Index position performs unexpectedly, Growth Allocation 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 Allocation will offset losses from the drop in Growth Allocation's long position.| Equity Index vs. Growth Equity Investor | Equity Index vs. Value Equity Investor | Equity Index vs. Small Cap Equity | Equity Index vs. International Equity Investor |
| Growth Allocation vs. Alphacentric Lifesci Healthcare | Growth Allocation vs. The Hartford Healthcare | Growth Allocation vs. Deutsche Health And | Growth Allocation vs. Health Care Ultrasector |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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