Correlation Between Value Fund and Strategic Income

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Can any of the company-specific risk be diversified away by investing in both Value Fund and Strategic 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 Value Fund and Strategic Income into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Value Fund A and Strategic Income Fund, you can compare the effects of market volatilities on Value Fund and Strategic 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 Value Fund with a short position of Strategic Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Value Fund and Strategic Income.

Diversification Opportunities for Value Fund and Strategic Income

-0.55
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Value and Strategic is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Value Fund A and Strategic Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Strategic Income and Value Fund 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 Value Fund A are associated (or correlated) with Strategic Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Strategic Income has no effect on the direction of Value Fund i.e., Value Fund and Strategic Income go up and down completely randomly.

Pair Corralation between Value Fund and Strategic Income

Assuming the 90 days horizon Value Fund A is expected to under-perform the Strategic Income. In addition to that, Value Fund is 2.74 times more volatile than Strategic Income Fund. It trades about -0.05 of its total potential returns per unit of risk. Strategic Income Fund is currently generating about 0.2 per unit of volatility. If you would invest  894.00  in Strategic Income Fund on September 12, 2024 and sell it today you would earn a total of  7.00  from holding Strategic Income Fund or generate 0.78% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy95.45%
ValuesDaily Returns

Value Fund A  vs.  Strategic Income Fund

 Performance 
       Timeline  
Value Fund A 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Value Fund A are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Value Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Strategic Income 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Strategic Income Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Strategic Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Value Fund and Strategic Income Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Value Fund and Strategic Income

The main advantage of trading using opposite Value Fund and Strategic Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Value Fund position performs unexpectedly, Strategic 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 Strategic Income will offset losses from the drop in Strategic Income's long position.
The idea behind Value Fund A and Strategic Income 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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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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.

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