Correlation Between Growth and World Growth
Can any of the company-specific risk be diversified away by investing in both Growth and World 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 Growth and World Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Growth And Tax and World Growth Fund, you can compare the effects of market volatilities on Growth and World 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 Growth with a short position of World Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Growth and World Growth.
Diversification Opportunities for Growth and World Growth
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Growth and World is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Growth And Tax and World Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on World Growth and 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 Growth And Tax are associated (or correlated) with World Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of World Growth has no effect on the direction of Growth i.e., Growth and World Growth go up and down completely randomly.
Pair Corralation between Growth and World Growth
Assuming the 90 days horizon Growth is expected to generate 1.24 times less return on investment than World Growth. But when comparing it to its historical volatility, Growth And Tax is 1.87 times less risky than World Growth. It trades about 0.22 of its potential returns per unit of risk. World Growth Fund is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 2,436 in World Growth Fund on September 1, 2024 and sell it today you would earn a total of 806.00 from holding World Growth Fund or generate 33.09% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Growth And Tax vs. World Growth Fund
Performance |
| Timeline |
| Growth And Tax |
| World Growth |
Growth and World Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Growth and World Growth
The main advantage of trading using opposite Growth and World Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Growth position performs unexpectedly, World 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 World Growth will offset losses from the drop in World Growth's long position.| Growth vs. World Growth Fund | Growth vs. Income Stock Fund | Growth vs. Tax Exempt Long Term | Growth vs. Tax Exempt Intermediate Term |
| World Growth vs. International Fund International | World Growth vs. Emerging Markets Fund | World Growth vs. Science Technology Fund | World Growth vs. Aggressive Growth Fund |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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