Correlation Between Growth Opportunities and Balanced Strategy
Can any of the company-specific risk be diversified away by investing in both Growth Opportunities and Balanced Strategy 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 Balanced Strategy 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 Balanced Strategy Fund, you can compare the effects of market volatilities on Growth Opportunities and Balanced Strategy 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 Balanced Strategy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Growth Opportunities and Balanced Strategy.
Diversification Opportunities for Growth Opportunities and Balanced Strategy
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Growth and Balanced is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Growth Opportunities Fund and Balanced Strategy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Balanced Strategy 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 Balanced Strategy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Balanced Strategy has no effect on the direction of Growth Opportunities i.e., Growth Opportunities and Balanced Strategy go up and down completely randomly.
Pair Corralation between Growth Opportunities and Balanced Strategy
Assuming the 90 days horizon Growth Opportunities Fund is expected to generate 2.22 times more return on investment than Balanced Strategy. However, Growth Opportunities is 2.22 times more volatile than Balanced Strategy Fund. It trades about 0.11 of its potential returns per unit of risk. Balanced Strategy Fund is currently generating about 0.12 per unit of risk. If you would invest 4,988 in Growth Opportunities Fund on September 3, 2024 and sell it today you would earn a total of 868.00 from holding Growth Opportunities Fund or generate 17.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Growth Opportunities Fund vs. Balanced Strategy Fund
Performance |
| Timeline |
| Growth Opportunities |
| Balanced Strategy |
Growth Opportunities and Balanced Strategy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Growth Opportunities and Balanced Strategy
The main advantage of trading using opposite Growth Opportunities and Balanced Strategy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Growth Opportunities position performs unexpectedly, Balanced Strategy 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 Balanced Strategy will offset losses from the drop in Balanced Strategy's long position.| Growth Opportunities vs. Victory Rs Partners | Growth Opportunities vs. Lord Abbett Small | Growth Opportunities vs. Hennessy Nerstone Mid | Growth Opportunities vs. Fpa Queens Road |
| Balanced Strategy vs. American Funds American | Balanced Strategy vs. American Funds American | Balanced Strategy vs. American Balanced | Balanced Strategy vs. American Balanced 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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