Correlation Between Growth Fund and Equity Income
Can any of the company-specific risk be diversified away by investing in both Growth 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 Growth 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 Growth Fund I and Equity Income Fund, you can compare the effects of market volatilities on Growth 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 Growth Fund with a short position of Equity Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Growth Fund and Equity Income.
Diversification Opportunities for Growth Fund and Equity Income
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Growth and Equity is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Growth Fund I and Equity Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Income and Growth 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 Growth Fund I 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 Growth Fund i.e., Growth Fund and Equity Income go up and down completely randomly.
Pair Corralation between Growth Fund and Equity Income
Assuming the 90 days horizon Growth Fund I is expected to generate 2.18 times more return on investment than Equity Income. However, Growth Fund is 2.18 times more volatile than Equity Income Fund. It trades about 0.09 of its potential returns per unit of risk. Equity Income Fund is currently generating about 0.13 per unit of risk. If you would invest 5,019 in Growth Fund I on August 25, 2024 and sell it today you would earn a total of 1,224 from holding Growth Fund I or generate 24.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Growth Fund I vs. Equity Income Fund
Performance |
| Timeline |
| Growth Fund I |
| Equity Income |
Growth Fund and Equity Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Growth Fund and Equity Income
The main advantage of trading using opposite Growth Fund and Equity Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Growth 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.| Growth Fund vs. International Growth Fund | Growth Fund vs. Heritage Fund Investor | Growth Fund vs. Janus Global Research |
| Equity Income vs. International Growth Fund | Equity Income vs. Growth Fund Investor | Equity Income vs. Equity Income Fund | Equity Income vs. Ultra 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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