Correlation Between Growth Opportunities and High Yield
Can any of the company-specific risk be diversified away by investing in both Growth Opportunities and High Yield 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 High Yield 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 High Yield Fund, you can compare the effects of market volatilities on Growth Opportunities and High Yield 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 High Yield. Check out your portfolio center. Please also check ongoing floating volatility patterns of Growth Opportunities and High Yield.
Diversification Opportunities for Growth Opportunities and High Yield
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GROWTH and High is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Growth Opportunities Fund and High Yield Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on High Yield Fund 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 High Yield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of High Yield Fund has no effect on the direction of Growth Opportunities i.e., Growth Opportunities and High Yield go up and down completely randomly.
Pair Corralation between Growth Opportunities and High Yield
Assuming the 90 days horizon Growth Opportunities Fund is expected to generate 3.81 times more return on investment than High Yield. However, Growth Opportunities is 3.81 times more volatile than High Yield Fund. It trades about 0.11 of its potential returns per unit of risk. High Yield Fund is currently generating about 0.12 per unit of risk. If you would invest 3,320 in Growth Opportunities Fund on September 2, 2024 and sell it today you would earn a total of 2,536 from holding Growth Opportunities Fund or generate 76.39% 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. High Yield Fund
Performance |
| Timeline |
| Growth Opportunities |
| High Yield Fund |
Growth Opportunities and High Yield Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Growth Opportunities and High Yield
The main advantage of trading using opposite Growth Opportunities and High Yield positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Growth Opportunities position performs unexpectedly, High Yield 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 High Yield will offset losses from the drop in High Yield's long position.| Growth Opportunities vs. Mid Cap Value Profund | Growth Opportunities vs. Mutual Of America | Growth Opportunities vs. American Century Etf | Growth Opportunities vs. Heartland Value Plus |
| High Yield vs. Energy Basic Materials | High Yield vs. Hennessy Bp Energy | High Yield vs. Goehring Rozencwajg Resources | High Yield vs. World Energy 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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