Correlation Between Growth Fund and Value Fund
Can any of the company-specific risk be diversified away by investing in both Growth Fund and Value Fund 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 Value Fund 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 Value Fund I, you can compare the effects of market volatilities on Growth Fund and Value Fund 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 Value Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Growth Fund and Value Fund.
Diversification Opportunities for Growth Fund and Value Fund
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Growth and Value is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Growth Fund I and Value Fund I in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Value Fund I 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 Value Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Value Fund I has no effect on the direction of Growth Fund i.e., Growth Fund and Value Fund go up and down completely randomly.
Pair Corralation between Growth Fund and Value Fund
Assuming the 90 days horizon Growth Fund I is expected to generate 1.21 times more return on investment than Value Fund. However, Growth Fund is 1.21 times more volatile than Value Fund I. It trades about 0.1 of its potential returns per unit of risk. Value Fund I is currently generating about 0.02 per unit of risk. If you would invest 3,878 in Growth Fund I on August 30, 2024 and sell it today you would earn a total of 2,390 from holding Growth Fund I or generate 61.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Growth Fund I vs. Value Fund I
Performance |
| Timeline |
| Growth Fund I |
| Value Fund I |
Growth Fund and Value Fund Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Growth Fund and Value Fund
The main advantage of trading using opposite Growth Fund and Value Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Growth Fund position performs unexpectedly, Value Fund 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 Value Fund will offset losses from the drop in Value Fund's long position.| Growth Fund vs. New Perspective Fund | Growth Fund vs. Investment Of America | Growth Fund vs. Virtus Emerging Markets | Growth Fund vs. Oak Ridge Small |
| Value Fund vs. Dodge Cox Stock | Value Fund vs. American Mutual Fund | Value Fund vs. American Funds American | Value Fund vs. American Funds American |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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