Correlation Between Equity Income and Strategic Income
Can any of the company-specific risk be diversified away by investing in both Equity Income 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 Equity Income and Strategic Income 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 Strategic Income Fund, you can compare the effects of market volatilities on Equity Income 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 Equity Income with a short position of Strategic Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equity Income and Strategic Income.
Diversification Opportunities for Equity Income and Strategic Income
-0.43 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Equity and Strategic is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Equity Income Fund and Strategic Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Strategic Income 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 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 Equity Income i.e., Equity Income and Strategic Income go up and down completely randomly.
Pair Corralation between Equity Income and Strategic Income
Assuming the 90 days horizon Equity Income Fund is expected to generate 2.33 times more return on investment than Strategic Income. However, Equity Income is 2.33 times more volatile than Strategic Income Fund. It trades about 0.09 of its potential returns per unit of risk. Strategic Income Fund is currently generating about -0.03 per unit of risk. If you would invest 934.00 in Equity Income Fund on September 4, 2024 and sell it today you would earn a total of 25.00 from holding Equity Income Fund or generate 2.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 98.44% |
| Values | Daily Returns |
Equity Income Fund vs. Strategic Income Fund
Performance |
| Timeline |
| Equity Income |
| Strategic Income |
Equity Income and Strategic Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Equity Income and Strategic Income
The main advantage of trading using opposite Equity Income and Strategic Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity Income 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.| Equity Income vs. Value Fund Investor | Equity Income vs. Heritage Fund Investor | Equity Income vs. Equity Growth Fund | Equity Income vs. Mid Cap Value |
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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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.
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