Correlation Between Equity Income and Income Growth
Can any of the company-specific risk be diversified away by investing in both Equity Income and Income 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 Income 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 Income Growth Fund, you can compare the effects of market volatilities on Equity Income and Income 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 Income Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equity Income and Income Growth.
Diversification Opportunities for Equity Income and Income Growth
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Equity and Income is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Equity Income Fund and Income Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Income 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 Income Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Income Growth has no effect on the direction of Equity Income i.e., Equity Income and Income Growth go up and down completely randomly.
Pair Corralation between Equity Income and Income Growth
Assuming the 90 days horizon Equity Income is expected to generate 2.38 times less return on investment than Income Growth. But when comparing it to its historical volatility, Equity Income Fund is 1.51 times less risky than Income Growth. It trades about 0.17 of its potential returns per unit of risk. Income Growth Fund is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 3,747 in Income Growth Fund on August 28, 2024 and sell it today you would earn a total of 182.00 from holding Income Growth Fund or generate 4.86% 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. Income Growth Fund
Performance |
| Timeline |
| Equity Income |
| Income Growth |
Equity Income and Income Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Equity Income and Income Growth
The main advantage of trading using opposite Equity Income and Income Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity Income position performs unexpectedly, Income 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 Income Growth will offset losses from the drop in Income Growth's long position.| Equity Income vs. International Growth Fund | Equity Income vs. Growth Fund Investor | Equity Income vs. Ultra Fund Investor | Equity Income vs. Strategic Allocation Aggressive |
| Income Growth vs. Evaluator Conservative Rms | Income Growth vs. American Funds Conservative | Income Growth vs. Pimco Diversified Income | Income Growth vs. Oaktree Diversifiedome |
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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
Other Complementary Tools
| Latest Portfolios Quick portfolio dashboard that showcases your latest portfolios | |
| Portfolio Anywhere Track or share privately all of your investments from the convenience of any device | |
| Price Transformation Use Price Transformation models to analyze the depth of different equity instruments across global markets | |
| Insider Screener Find insiders across different sectors to evaluate their impact on performance | |
| Equity Forecasting Use basic forecasting models to generate price predictions and determine price momentum |