Correlation Between Income Fund and Equity Income
Can any of the company-specific risk be diversified away by investing in both Income Fund and Equity Income 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 Income into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Income Fund R 3 and Equity Income Fund, you can compare the effects of market volatilities on Income Fund and Equity Income 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 Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Income Fund and Equity Income.
Diversification Opportunities for Income Fund and Equity Income
-0.68 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Income and Equity is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Income Fund R 3 and Equity Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Income 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 R 3 are associated (or correlated) with Equity Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Income has no effect on the direction of Income Fund i.e., Income Fund and Equity Income go up and down completely randomly.
Pair Corralation between Income Fund and Equity Income
Assuming the 90 days horizon Income Fund is expected to generate 5.09 times less return on investment than Equity Income. But when comparing it to its historical volatility, Income Fund R 3 is 1.93 times less risky than Equity Income. It trades about 0.06 of its potential returns per unit of risk. Equity Income Fund is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 3,522 in Equity Income Fund on August 26, 2024 and sell it today you would earn a total of 1,012 from holding Equity Income Fund or generate 28.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Income Fund R 3 vs. Equity Income Fund
Performance |
| Timeline |
| Income Fund R |
| Equity Income |
Income Fund and Equity Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Income Fund and Equity Income
The main advantage of trading using opposite Income Fund and Equity Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Income Fund position performs unexpectedly, Equity Income 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 Income will offset losses from the drop in Equity Income's long position.| Income Fund vs. Strategic Asset Management | Income Fund vs. Strategic Asset Management | Income Fund vs. Strategic Asset Management | Income Fund vs. Strategic Asset Management |
| Equity Income vs. Strategic Asset Management | Equity Income vs. Strategic Asset Management | Equity Income vs. Strategic Asset Management | Equity Income vs. Strategic Asset Management |
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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