Correlation Between Income Stock and World Growth
Can any of the company-specific risk be diversified away by investing in both Income Stock 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 Income Stock and World Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Income Stock Fund and World Growth Fund, you can compare the effects of market volatilities on Income Stock 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 Income Stock with a short position of World Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Income Stock and World Growth.
Diversification Opportunities for Income Stock and World Growth
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Income and World is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Income Stock Fund and World Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on World Growth and Income Stock 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 Income Stock Fund 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 Income Stock i.e., Income Stock and World Growth go up and down completely randomly.
Pair Corralation between Income Stock and World Growth
Assuming the 90 days horizon Income Stock Fund is expected to generate 0.69 times more return on investment than World Growth. However, Income Stock Fund is 1.45 times less risky than World Growth. It trades about -0.06 of its potential returns per unit of risk. World Growth Fund is currently generating about -0.19 per unit of risk. If you would invest 1,841 in Income Stock Fund on December 1, 2024 and sell it today you would lose (12.00) from holding Income Stock Fund or give up 0.65% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Income Stock Fund vs. World Growth Fund
Performance |
| Timeline |
| Income Stock |
| World Growth |
Income Stock and World Growth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Income Stock and World Growth
The main advantage of trading using opposite Income Stock and World Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Income Stock 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.| Income Stock vs. Wilmington Funds | Income Stock vs. Dreyfus Institutional Reserves | Income Stock vs. John Hancock Money | Income Stock vs. Franklin Government Money |
| 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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