Correlation Between Select Equity and Multifactor
Can any of the company-specific risk be diversified away by investing in both Select Equity and Multifactor 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 Select Equity and Multifactor into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Select Equity Fund and Multifactor Equity Fund, you can compare the effects of market volatilities on Select Equity and Multifactor 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 Select Equity with a short position of Multifactor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Select Equity and Multifactor.
Diversification Opportunities for Select Equity and Multifactor
1.0 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Select and Multifactor is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Select Equity Fund and Multifactor Equity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Multifactor Equity and Select 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 Select Equity Fund are associated (or correlated) with Multifactor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Multifactor Equity has no effect on the direction of Select Equity i.e., Select Equity and Multifactor go up and down completely randomly.
Pair Corralation between Select Equity and Multifactor
Assuming the 90 days horizon Select Equity Fund is expected to generate 1.0 times more return on investment than Multifactor. However, Select Equity is 1.0 times more volatile than Multifactor Equity Fund. It trades about 0.24 of its potential returns per unit of risk. Multifactor Equity Fund is currently generating about 0.23 per unit of risk. If you would invest 1,976 in Select Equity Fund on August 29, 2024 and sell it today you would earn a total of 93.00 from holding Select Equity Fund or generate 4.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Select Equity Fund vs. Multifactor Equity Fund
Performance |
| Timeline |
| Select Equity |
| Multifactor Equity |
Select Equity and Multifactor Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Select Equity and Multifactor
The main advantage of trading using opposite Select Equity and Multifactor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Select Equity position performs unexpectedly, Multifactor 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 Multifactor will offset losses from the drop in Multifactor's long position.| Select Equity vs. International Developed Markets | Select Equity vs. Global Real Estate | Select Equity vs. Global Real Estate | Select Equity vs. Global Real Estate |
| Multifactor vs. International Developed Markets | Multifactor vs. Global Real Estate | Multifactor vs. Global Real Estate | Multifactor 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 Transaction History module to view history of all your transactions and understand their impact on performance.
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