Correlation Between Growth Fund and Stock Index
Can any of the company-specific risk be diversified away by investing in both Growth Fund and Stock Index 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 Fund and Stock Index into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Growth Fund Growth and Stock Index Fund, you can compare the effects of market volatilities on Growth Fund and Stock Index 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 Fund with a short position of Stock Index. Check out your portfolio center. Please also check ongoing floating volatility patterns of Growth Fund and Stock Index.
Diversification Opportunities for Growth Fund and Stock Index
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Growth and Stock is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Growth Fund Growth and Stock Index Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stock Index Fund and Growth Fund 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 Fund Growth are associated (or correlated) with Stock Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stock Index Fund has no effect on the direction of Growth Fund i.e., Growth Fund and Stock Index go up and down completely randomly.
Pair Corralation between Growth Fund and Stock Index
Assuming the 90 days horizon Growth Fund Growth is expected to generate 1.23 times more return on investment than Stock Index. However, Growth Fund is 1.23 times more volatile than Stock Index Fund. It trades about 0.33 of its potential returns per unit of risk. Stock Index Fund is currently generating about 0.36 per unit of risk. If you would invest 1,852 in Growth Fund Growth on September 1, 2024 and sell it today you would earn a total of 123.00 from holding Growth Fund Growth or generate 6.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Growth Fund Growth vs. Stock Index Fund
Performance |
| Timeline |
| Growth Fund Growth |
| Stock Index Fund |
Growth Fund and Stock Index Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Growth Fund and Stock Index
The main advantage of trading using opposite Growth Fund and Stock Index positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Growth Fund position performs unexpectedly, Stock Index 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 Stock Index will offset losses from the drop in Stock Index's long position.| Growth Fund vs. Value Fund Value | Growth Fund vs. Stock Index Fund | Growth Fund vs. Small Company Stock Fund | Growth Fund vs. International Equity Fund |
| Stock Index vs. Value Fund Value | Stock Index vs. Growth Fund Growth | Stock Index vs. International Equity Fund | Stock Index vs. Short Term 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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