Correlation Between Growth Equity and Defensive Market
Can any of the company-specific risk be diversified away by investing in both Growth Equity and Defensive Market 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 Growth Equity and Defensive Market into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Growth Equity Investor and Defensive Market Strategies, you can compare the effects of market volatilities on Growth Equity and Defensive Market 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 Growth Equity with a short position of Defensive Market. Check out your portfolio center. Please also check ongoing floating volatility patterns of Growth Equity and Defensive Market.
Diversification Opportunities for Growth Equity and Defensive Market
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Growth and Defensive is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Growth Equity Investor and Defensive Market Strategies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Defensive Market Str and Growth Equity 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 Growth Equity Investor are associated (or correlated) with Defensive Market. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Defensive Market Str has no effect on the direction of Growth Equity i.e., Growth Equity and Defensive Market go up and down completely randomly.
Pair Corralation between Growth Equity and Defensive Market
Assuming the 90 days horizon Growth Equity Investor is expected to generate 2.68 times more return on investment than Defensive Market. However, Growth Equity is 2.68 times more volatile than Defensive Market Strategies. It trades about 0.1 of its potential returns per unit of risk. Defensive Market Strategies is currently generating about 0.22 per unit of risk. If you would invest 2,676 in Growth Equity Investor on November 9, 2024 and sell it today you would earn a total of 55.00 from holding Growth Equity Investor or generate 2.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Growth Equity Investor vs. Defensive Market Strategies
Performance |
| Timeline |
| Growth Equity Investor |
| Defensive Market Str |
Growth Equity and Defensive Market Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Growth Equity and Defensive Market
The main advantage of trading using opposite Growth Equity and Defensive Market positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Growth Equity position performs unexpectedly, Defensive Market 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 Defensive Market will offset losses from the drop in Defensive Market's long position.| Growth Equity vs. Angel Oak Multi Strategy | Growth Equity vs. Morgan Stanley Emerging | Growth Equity vs. T Rowe Price | Growth Equity vs. T Rowe Price |
| Defensive Market vs. Financial Industries Fund | Defensive Market vs. Fidelity Advisor Financial | Defensive Market vs. Financial Services Portfolio | Defensive Market vs. Blackrock Financial Institutions |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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