Correlation Between New World and New Economy
Can any of the company-specific risk be diversified away by investing in both New World and New Economy 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 New World and New Economy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between New World Fund and New Economy Fund, you can compare the effects of market volatilities on New World and New Economy 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 New World with a short position of New Economy. Check out your portfolio center. Please also check ongoing floating volatility patterns of New World and New Economy.
Diversification Opportunities for New World and New Economy
0.42 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between New and New is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding New World Fund and New Economy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Economy Fund and New World 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 New World Fund are associated (or correlated) with New Economy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Economy Fund has no effect on the direction of New World i.e., New World and New Economy go up and down completely randomly.
Pair Corralation between New World and New Economy
Assuming the 90 days horizon New World Fund is expected to under-perform the New Economy. But the mutual fund apears to be less risky and, when comparing its historical volatility, New World Fund is 1.43 times less risky than New Economy. The mutual fund trades about -0.19 of its potential returns per unit of risk. The New Economy Fund is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 6,733 in New Economy Fund on August 29, 2024 and sell it today you would earn a total of 139.00 from holding New Economy Fund or generate 2.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
New World Fund vs. New Economy Fund
Performance |
| Timeline |
| New World Fund |
| New Economy Fund |
New World and New Economy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with New World and New Economy
The main advantage of trading using opposite New World and New Economy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New World position performs unexpectedly, New Economy 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 New Economy will offset losses from the drop in New Economy's long position.| New World vs. Mirova Global Green | New World vs. Ms Global Fixed | New World vs. Dreyfusstandish Global Fixed | New World vs. Commonwealth Global Fund |
| New Economy vs. Artisan Global Unconstrained | New Economy vs. Scharf Global Opportunity | New Economy vs. Ab Global Risk | New Economy vs. Morgan Stanley Global |
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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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