Correlation Between Growth Strategy and Balanced Strategy
Can any of the company-specific risk be diversified away by investing in both Growth Strategy and Balanced Strategy 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 Strategy and Balanced Strategy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Growth Strategy Fund and Balanced Strategy Fund, you can compare the effects of market volatilities on Growth Strategy and Balanced Strategy 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 Strategy with a short position of Balanced Strategy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Growth Strategy and Balanced Strategy.
Diversification Opportunities for Growth Strategy and Balanced Strategy
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Growth and Balanced is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Growth Strategy Fund and Balanced Strategy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Balanced Strategy and Growth Strategy 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 Strategy Fund are associated (or correlated) with Balanced Strategy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Balanced Strategy has no effect on the direction of Growth Strategy i.e., Growth Strategy and Balanced Strategy go up and down completely randomly.
Pair Corralation between Growth Strategy and Balanced Strategy
Assuming the 90 days horizon Growth Strategy Fund is expected to generate 1.24 times more return on investment than Balanced Strategy. However, Growth Strategy is 1.24 times more volatile than Balanced Strategy Fund. It trades about 0.12 of its potential returns per unit of risk. Balanced Strategy Fund is currently generating about 0.13 per unit of risk. If you would invest 1,290 in Growth Strategy Fund on August 28, 2024 and sell it today you would earn a total of 20.00 from holding Growth Strategy Fund or generate 1.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Growth Strategy Fund vs. Balanced Strategy Fund
Performance |
| Timeline |
| Growth Strategy |
| Balanced Strategy |
Growth Strategy and Balanced Strategy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Growth Strategy and Balanced Strategy
The main advantage of trading using opposite Growth Strategy and Balanced Strategy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Growth Strategy position performs unexpectedly, Balanced Strategy 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 Balanced Strategy will offset losses from the drop in Balanced Strategy's long position.| Growth Strategy vs. International Developed Markets | Growth Strategy vs. Global Real Estate | Growth Strategy vs. Global Real Estate | Growth Strategy vs. Global Real Estate |
| Balanced Strategy vs. International Developed Markets | Balanced Strategy vs. Global Real Estate | Balanced Strategy vs. Global Real Estate | Balanced Strategy 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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