Correlation Between Science Technology and Growth Allocation
Can any of the company-specific risk be diversified away by investing in both Science Technology and Growth Allocation 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 Science Technology and Growth Allocation into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Science Technology Fund and Growth Allocation Fund, you can compare the effects of market volatilities on Science Technology and Growth Allocation 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 Science Technology with a short position of Growth Allocation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Science Technology and Growth Allocation.
Diversification Opportunities for Science Technology and Growth Allocation
0.55 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Science and Growth is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Science Technology Fund and Growth Allocation Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Growth Allocation and Science Technology 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 Science Technology Fund are associated (or correlated) with Growth Allocation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Growth Allocation has no effect on the direction of Science Technology i.e., Science Technology and Growth Allocation go up and down completely randomly.
Pair Corralation between Science Technology and Growth Allocation
Assuming the 90 days horizon Science Technology Fund is expected to under-perform the Growth Allocation. In addition to that, Science Technology is 2.78 times more volatile than Growth Allocation Fund. It trades about -0.05 of its total potential returns per unit of risk. Growth Allocation Fund is currently generating about 0.13 per unit of volatility. If you would invest 1,267 in Growth Allocation Fund on November 30, 2024 and sell it today you would earn a total of 36.00 from holding Growth Allocation Fund or generate 2.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Science Technology Fund vs. Growth Allocation Fund
Performance |
| Timeline |
| Science Technology |
| Growth Allocation |
Science Technology and Growth Allocation Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Science Technology and Growth Allocation
The main advantage of trading using opposite Science Technology and Growth Allocation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Science Technology position performs unexpectedly, Growth Allocation 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 Allocation will offset losses from the drop in Growth Allocation's long position.The idea behind Science Technology Fund and Growth Allocation Fund pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Global Correlations module to find global opportunities by holding instruments from different markets.
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