Correlation Between Capital Growth and Growth Income
Can any of the company-specific risk be diversified away by investing in both Capital Growth and Growth 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 Capital Growth and Growth Income into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Capital Growth Fund and Growth Income Fund, you can compare the effects of market volatilities on Capital Growth and Growth 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 Capital Growth with a short position of Growth Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Growth and Growth Income.
Diversification Opportunities for Capital Growth and Growth Income
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Capital and Growth is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Capital Growth Fund and Growth Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Growth Income and Capital Growth 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 Capital Growth Fund are associated (or correlated) with Growth Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Growth Income has no effect on the direction of Capital Growth i.e., Capital Growth and Growth Income go up and down completely randomly.
Pair Corralation between Capital Growth and Growth Income
Assuming the 90 days horizon Capital Growth is expected to generate 1.21 times less return on investment than Growth Income. In addition to that, Capital Growth is 1.05 times more volatile than Growth Income Fund. It trades about 0.11 of its total potential returns per unit of risk. Growth Income Fund is currently generating about 0.14 per unit of volatility. If you would invest 2,366 in Growth Income Fund on August 28, 2024 and sell it today you would earn a total of 542.00 from holding Growth Income Fund or generate 22.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Capital Growth Fund vs. Growth Income Fund
Performance |
| Timeline |
| Capital Growth |
| Growth Income |
Capital Growth and Growth Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Capital Growth and Growth Income
The main advantage of trading using opposite Capital Growth and Growth Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital Growth position performs unexpectedly, Growth 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 Growth Income will offset losses from the drop in Growth Income's long position.| Capital Growth vs. Emerging Markets Fund | Capital Growth vs. High Income Fund | Capital Growth vs. International Fund International | Capital Growth vs. Growth Income Fund |
| Growth Income vs. Archer Balanced Fund | Growth Income vs. Semiconductor Ultrasector Profund | Growth Income vs. Balanced Fund Investor | Growth Income vs. Omni Small Cap Value |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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