Correlation Between Europacific Growth and Eafe Fund

Can any of the company-specific risk be diversified away by investing in both Europacific Growth and Eafe 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 Europacific Growth and Eafe Fund into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Europacific Growth Fund and The Eafe Fund, you can compare the effects of market volatilities on Europacific Growth and Eafe 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 Europacific Growth with a short position of Eafe Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Europacific Growth and Eafe Fund.

Diversification Opportunities for Europacific Growth and Eafe Fund

0.7

Correlation Coefficient

Europacific Growth  Eafe Fund

Poor diversification

The 3 months correlation between Europacific and Eafe is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Europacific Growth Fund and The Eafe Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eafe Fund and Europacific 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 Europacific Growth Fund are associated (or correlated) with Eafe Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eafe Fund has no effect on the direction of Europacific Growth i.e., Europacific Growth and Eafe Fund go up and down completely randomly.

Pair Corralation between Europacific Growth and Eafe Fund

Assuming the 90 days horizon Europacific Growth is expected to generate 1.05 times less return on investment than Eafe Fund. But when comparing it to its historical volatility, Europacific Growth Fund is 1.5 times less risky than Eafe Fund. It trades about 0.06 of its potential returns per unit of risk. The Eafe Fund is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,255  in The Eafe Fund on December 30, 2024 and sell it today you would earn a total of  39.00  from holding The Eafe Fund or generate 3.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Europacific Growth Fund  vs.  The Eafe Fund

Europacific Growth

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Europacific Growth Fund are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Europacific Growth is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Eafe Fund

Risk-Adjusted Performance

Insignificant

Over the last 90 days The Eafe Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward-looking signals, Eafe Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Europacific Growth and Eafe Fund

The main advantage of trading using opposite Europacific Growth and Eafe Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Europacific Growth position performs unexpectedly, Eafe 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 Eafe Fund will offset losses from the drop in Eafe Fund's long position.

The idea behind Europacific Growth Fund and The Eafe 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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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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.