Correlation Between Balanced Fund and Equity Income
Can any of the company-specific risk be diversified away by investing in both Balanced Fund and Equity 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 Balanced Fund and Equity Income into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Balanced Fund Investor and Equity Income Fund, you can compare the effects of market volatilities on Balanced Fund and Equity 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 Balanced Fund with a short position of Equity Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Balanced Fund and Equity Income.
Diversification Opportunities for Balanced Fund and Equity Income
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Balanced and Equity is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Balanced Fund Investor and Equity Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Income and Balanced 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 Balanced Fund Investor are associated (or correlated) with Equity Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Income has no effect on the direction of Balanced Fund i.e., Balanced Fund and Equity Income go up and down completely randomly.
Pair Corralation between Balanced Fund and Equity Income
Assuming the 90 days horizon Balanced Fund Investor is expected to generate 0.87 times more return on investment than Equity Income. However, Balanced Fund Investor is 1.15 times less risky than Equity Income. It trades about 0.09 of its potential returns per unit of risk. Equity Income Fund is currently generating about 0.03 per unit of risk. If you would invest 1,570 in Balanced Fund Investor on September 1, 2024 and sell it today you would earn a total of 448.00 from holding Balanced Fund Investor or generate 28.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Balanced Fund Investor vs. Equity Income Fund
Performance |
| Timeline |
| Balanced Fund Investor |
| Equity Income |
Balanced Fund and Equity Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Balanced Fund and Equity Income
The main advantage of trading using opposite Balanced Fund and Equity Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Balanced Fund position performs unexpectedly, Equity 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 Equity Income will offset losses from the drop in Equity Income's long position.| Balanced Fund vs. Select Fund Investor | Balanced Fund vs. Heritage Fund Investor | Balanced Fund vs. Value Fund Investor | Balanced Fund vs. Growth Fund Investor |
| Equity Income vs. Mid Cap Value | Equity Income vs. American Balanced Fund | Equity Income vs. Small Cap Value | Equity Income vs. American Funds 2020 |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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