Correlation Between Income Fund and Equity Growth
Can any of the company-specific risk be diversified away by investing in both Income Fund and Equity Growth 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 Income Fund and Equity Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Income Fund Of and Equity Growth Strategy, you can compare the effects of market volatilities on Income Fund and Equity Growth 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 Income Fund with a short position of Equity Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Income Fund and Equity Growth.
Diversification Opportunities for Income Fund and Equity Growth
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Income and Equity is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Income Fund Of and Equity Growth Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Growth Strategy and Income 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 Income Fund Of are associated (or correlated) with Equity Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Growth Strategy has no effect on the direction of Income Fund i.e., Income Fund and Equity Growth go up and down completely randomly.
Pair Corralation between Income Fund and Equity Growth
Assuming the 90 days horizon Income Fund is expected to generate 1.98 times less return on investment than Equity Growth. But when comparing it to its historical volatility, Income Fund Of is 1.3 times less risky than Equity Growth. It trades about 0.22 of its potential returns per unit of risk. Equity Growth Strategy is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest 1,582 in Equity Growth Strategy on September 1, 2024 and sell it today you would earn a total of 62.00 from holding Equity Growth Strategy or generate 3.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Income Fund Of vs. Equity Growth Strategy
Performance |
| Timeline |
| Income Fund |
| Equity Growth Strategy |
Income Fund and Equity Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Income Fund and Equity Growth
The main advantage of trading using opposite Income Fund and Equity Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Income Fund position performs unexpectedly, Equity Growth 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 Equity Growth will offset losses from the drop in Equity Growth's long position.| Income Fund vs. Capital Income Builder | Income Fund vs. Capital World Growth | Income Fund vs. American Balanced Fund | Income Fund vs. Growth Fund Of |
| Equity Growth vs. International Developed Markets | Equity Growth vs. Global Real Estate | Equity Growth vs. Global Real Estate | Equity Growth vs. Global Real Estate |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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