Correlation Between Growth Opportunities and High Income
Can any of the company-specific risk be diversified away by investing in both Growth Opportunities and High Income 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 Income 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 Income Fund, you can compare the effects of market volatilities on Growth Opportunities and High Income 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 Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Growth Opportunities and High Income.
Diversification Opportunities for Growth Opportunities and High Income
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Growth and High is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Growth Opportunities Fund and High Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on High Income 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 Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of High Income Fund has no effect on the direction of Growth Opportunities i.e., Growth Opportunities and High Income go up and down completely randomly.
Pair Corralation between Growth Opportunities and High Income
Assuming the 90 days horizon Growth Opportunities Fund is expected to generate 4.06 times more return on investment than High Income. However, Growth Opportunities is 4.06 times more volatile than High Income Fund. It trades about 0.11 of its potential returns per unit of risk. High Income Fund is currently generating about 0.13 per unit of risk. If you would invest 3,358 in Growth Opportunities Fund on September 3, 2024 and sell it today you would earn a total of 2,498 from holding Growth Opportunities Fund or generate 74.39% 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 Income Fund
Performance |
| Timeline |
| Growth Opportunities |
| High Income Fund |
Growth Opportunities and High Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Growth Opportunities and High Income
The main advantage of trading using opposite Growth Opportunities and High Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Growth Opportunities position performs unexpectedly, High Income 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 Income will offset losses from the drop in High Income'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 |
| High Income vs. Vanguard High Yield Corporate | High Income vs. Vanguard High Yield Porate | High Income vs. Blackrock Hi Yld | High Income vs. Blackrock High Yield |
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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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