Correlation Between New Economy and New World
Can any of the company-specific risk be diversified away by investing in both New Economy and New World 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 Economy and New World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between New Economy Fund and New World Fund, you can compare the effects of market volatilities on New Economy and New World 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 Economy with a short position of New World. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Economy and New World.
Diversification Opportunities for New Economy and New World
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 Economy Fund and New World Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New World Fund and New Economy 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 Economy Fund are associated (or correlated) with New World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New World Fund has no effect on the direction of New Economy i.e., New Economy and New World go up and down completely randomly.
Pair Corralation between New Economy and New World
Assuming the 90 days horizon New Economy Fund is expected to generate 1.43 times more return on investment than New World. However, New Economy is 1.43 times more volatile than New World Fund. It trades about 0.1 of its potential returns per unit of risk. New World Fund is currently generating about -0.19 per unit of risk. 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 Economy Fund vs. New World Fund
Performance |
| Timeline |
| New Economy Fund |
| New World Fund |
New Economy and New World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with New Economy and New World
The main advantage of trading using opposite New Economy and New World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New Economy position performs unexpectedly, New World 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 World will offset losses from the drop in New World's long position.| New Economy vs. Artisan Global Unconstrained | New Economy vs. Scharf Global Opportunity | New Economy vs. Ab Global Risk | New Economy vs. Morgan Stanley Global |
| New World vs. Mirova Global Green | New World vs. Ms Global Fixed | New World vs. Dreyfusstandish Global Fixed | New World vs. Commonwealth Global 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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