Correlation Between Balanced Fund and Equity Growth
Can any of the company-specific risk be diversified away by investing in both Balanced Fund and Equity Growth 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 Growth 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 Growth Fund, you can compare the effects of market volatilities on Balanced Fund and Equity Growth 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 Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Balanced Fund and Equity Growth.
Diversification Opportunities for Balanced Fund and Equity Growth
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Balanced and Equity is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Balanced Fund Investor and Equity Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Growth 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 Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Growth has no effect on the direction of Balanced Fund i.e., Balanced Fund and Equity Growth go up and down completely randomly.
Pair Corralation between Balanced Fund and Equity Growth
Assuming the 90 days horizon Balanced Fund is expected to generate 1.28 times less return on investment than Equity Growth. But when comparing it to its historical volatility, Balanced Fund Investor is 1.69 times less risky than Equity Growth. It trades about 0.34 of its potential returns per unit of risk. Equity Growth Fund is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 3,366 in Equity Growth Fund on September 18, 2024 and sell it today you would earn a total of 98.00 from holding Equity Growth Fund or generate 2.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.24% |
| Values | Daily Returns |
Balanced Fund Investor vs. Equity Growth Fund
Performance |
| Timeline |
| Balanced Fund Investor |
| Equity Growth |
Balanced Fund and Equity Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Balanced Fund and Equity Growth
The main advantage of trading using opposite Balanced Fund and Equity Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Balanced Fund position performs unexpectedly, Equity Growth 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 Growth will offset losses from the drop in Equity Growth's long position.| Balanced Fund vs. Strategic Allocation Servative | Balanced Fund vs. Strategic Allocation Aggressive | Balanced Fund vs. Value Fund Investor | Balanced Fund vs. International Growth Fund |
| Equity Growth vs. Mid Cap Value | Equity Growth vs. Income Growth Fund | Equity Growth vs. Diversified Bond Fund | Equity Growth vs. Emerging Markets 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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