Correlation Between New Economy and New Perspective
Can any of the company-specific risk be diversified away by investing in both New Economy and New Perspective 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 Perspective 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 Perspective Fund, you can compare the effects of market volatilities on New Economy and New Perspective 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 Perspective. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Economy and New Perspective.
Diversification Opportunities for New Economy and New Perspective
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between New and New is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding New Economy Fund and New Perspective Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Perspective 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 Perspective. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Perspective has no effect on the direction of New Economy i.e., New Economy and New Perspective go up and down completely randomly.
Pair Corralation between New Economy and New Perspective
Assuming the 90 days horizon New Economy Fund is expected to generate 1.13 times more return on investment than New Perspective. However, New Economy is 1.13 times more volatile than New Perspective Fund. It trades about 0.09 of its potential returns per unit of risk. New Perspective Fund is currently generating about 0.06 per unit of risk. If you would invest 4,445 in New Economy Fund on August 27, 2024 and sell it today you would earn a total of 2,345 from holding New Economy Fund or generate 52.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
New Economy Fund vs. New Perspective Fund
Performance |
| Timeline |
| New Economy Fund |
| New Perspective |
New Economy and New Perspective Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with New Economy and New Perspective
The main advantage of trading using opposite New Economy and New Perspective positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New Economy position performs unexpectedly, New Perspective 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 Perspective will offset losses from the drop in New Perspective's long position.| New Economy vs. Jhancock Disciplined Value | New Economy vs. Qs Large Cap | New Economy vs. T Rowe Price | New Economy vs. Fisher Large Cap |
| New Perspective vs. Wells Fargo Advantage | New Perspective vs. Fidelity Advisor Gold | New Perspective vs. James Balanced Golden | New Perspective vs. Invesco Gold Special |
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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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