Correlation Between Growth Opportunities and Touchstone Arbitrage
Can any of the company-specific risk be diversified away by investing in both Growth Opportunities and Touchstone Arbitrage 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 Growth Opportunities and Touchstone Arbitrage into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Growth Opportunities Fund and Touchstone Arbitrage Fund, you can compare the effects of market volatilities on Growth Opportunities and Touchstone Arbitrage 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 Growth Opportunities with a short position of Touchstone Arbitrage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Growth Opportunities and Touchstone Arbitrage.
Diversification Opportunities for Growth Opportunities and Touchstone Arbitrage
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Growth and Touchstone is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Growth Opportunities Fund and Touchstone Arbitrage Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Touchstone Arbitrage and Growth Opportunities 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 Growth Opportunities Fund are associated (or correlated) with Touchstone Arbitrage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Touchstone Arbitrage has no effect on the direction of Growth Opportunities i.e., Growth Opportunities and Touchstone Arbitrage go up and down completely randomly.
Pair Corralation between Growth Opportunities and Touchstone Arbitrage
Assuming the 90 days horizon Growth Opportunities Fund is expected to generate 7.5 times more return on investment than Touchstone Arbitrage. However, Growth Opportunities is 7.5 times more volatile than Touchstone Arbitrage Fund. It trades about 0.2 of its potential returns per unit of risk. Touchstone Arbitrage Fund is currently generating about 0.28 per unit of risk. If you would invest 5,096 in Growth Opportunities Fund on August 29, 2024 and sell it today you would earn a total of 247.00 from holding Growth Opportunities Fund or generate 4.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Growth Opportunities Fund vs. Touchstone Arbitrage Fund
Performance |
| Timeline |
| Growth Opportunities |
| Touchstone Arbitrage |
Growth Opportunities and Touchstone Arbitrage Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Growth Opportunities and Touchstone Arbitrage
The main advantage of trading using opposite Growth Opportunities and Touchstone Arbitrage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Growth Opportunities position performs unexpectedly, Touchstone Arbitrage 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 Touchstone Arbitrage will offset losses from the drop in Touchstone Arbitrage's long position.The idea behind Growth Opportunities Fund and Touchstone Arbitrage Fund pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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