Correlation Between Multifactor Equity and Select Equity
Can any of the company-specific risk be diversified away by investing in both Multifactor Equity and Select Equity 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 Multifactor Equity and Select Equity into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Multifactor Equity Fund and Select Equity Fund, you can compare the effects of market volatilities on Multifactor Equity and Select Equity 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 Multifactor Equity with a short position of Select Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Multifactor Equity and Select Equity.
Diversification Opportunities for Multifactor Equity and Select Equity
1.0 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Multifactor and Select is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Multifactor Equity Fund and Select Equity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select Equity and Multifactor Equity 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 Multifactor Equity Fund are associated (or correlated) with Select Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select Equity has no effect on the direction of Multifactor Equity i.e., Multifactor Equity and Select Equity go up and down completely randomly.
Pair Corralation between Multifactor Equity and Select Equity
Assuming the 90 days horizon Multifactor Equity is expected to generate 1.02 times less return on investment than Select Equity. But when comparing it to its historical volatility, Multifactor Equity Fund is 1.01 times less risky than Select Equity. It trades about 0.38 of its potential returns per unit of risk. Select Equity Fund is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest 1,940 in Select Equity Fund on September 1, 2024 and sell it today you would earn a total of 133.00 from holding Select Equity Fund or generate 6.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Multifactor Equity Fund vs. Select Equity Fund
Performance |
| Timeline |
| Multifactor Equity |
| Select Equity |
Multifactor Equity and Select Equity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Multifactor Equity and Select Equity
The main advantage of trading using opposite Multifactor Equity and Select Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Multifactor Equity position performs unexpectedly, Select Equity 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 Select Equity will offset losses from the drop in Select Equity's long position.| Multifactor Equity vs. Fa 529 Aggressive | Multifactor Equity vs. Western Asset Municipal | Multifactor Equity vs. Iaadx | Multifactor Equity vs. Scharf Global Opportunity |
| Select Equity vs. Baird Smallmid Cap | Select Equity vs. Small Pany Growth | Select Equity vs. Kinetics Small Cap | Select Equity vs. Tax Managed Mid Small |
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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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