Correlation Between Equity Income and Equity Growth
Can any of the company-specific risk be diversified away by investing in both Equity Income 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 Equity Income and Equity Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Equity Income Fund and Equity Growth Fund, you can compare the effects of market volatilities on Equity Income 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 Equity Income with a short position of Equity Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equity Income and Equity Growth.
Diversification Opportunities for Equity Income and Equity Growth
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Equity and Equity is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Equity Income Fund and Equity Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Growth and Equity Income 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 Equity Income Fund 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 Equity Income i.e., Equity Income and Equity Growth go up and down completely randomly.
Pair Corralation between Equity Income and Equity Growth
Assuming the 90 days horizon Equity Income is expected to generate 118.43 times less return on investment than Equity Growth. But when comparing it to its historical volatility, Equity Income Fund is 72.22 times less risky than Equity Growth. It trades about 0.03 of its potential returns per unit of risk. Equity Growth Fund is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 2,197 in Equity Growth Fund on September 5, 2024 and sell it today you would earn a total of 1,280 from holding Equity Growth Fund or generate 58.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Equity Income Fund vs. Equity Growth Fund
Performance |
| Timeline |
| Equity Income |
| Equity Growth |
Equity Income and Equity Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Equity Income and Equity Growth
The main advantage of trading using opposite Equity Income and Equity Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity Income 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.| Equity Income vs. Mid Cap Value | Equity Income vs. Equity Growth Fund | Equity Income vs. Income Growth Fund | Equity Income vs. Diversified Bond Fund |
| Equity Growth vs. Income Growth Fund | Equity Growth vs. Equity Income Fund | Equity Growth vs. International Growth Fund | Equity Growth vs. Value Fund Investor |
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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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