Correlation Between Sustainable Equity and Heritage Fund

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

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

Diversification Opportunities for Sustainable Equity and Heritage Fund

0.93

Correlation Coefficient

Sustainable Equity  Heritage Fund

Almost no diversification

The 3 months correlation between Sustainable and Heritage is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Sustainable Equity Fund and Heritage Fund Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heritage Fund Investor and Sustainable Equity 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 Sustainable Equity Fund are associated (or correlated) with Heritage Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heritage Fund Investor has no effect on the direction of Sustainable Equity i.e., Sustainable Equity and Heritage Fund go up and down completely randomly.

Pair Corralation between Sustainable Equity and Heritage Fund

Assuming the 90 days horizon Sustainable Equity Fund is expected to generate 0.7 times more return on investment than Heritage Fund. However, Sustainable Equity Fund is 1.43 times less risky than Heritage Fund. It trades about 0.08 of its potential returns per unit of risk. Heritage Fund Investor is currently generating about 0.05 per unit of risk. If you would invest  3,811  in Sustainable Equity Fund on September 23, 2024 and sell it today you would earn a total of  1,526  from holding Sustainable Equity Fund or generate 40.04% return on investment over 90 days.

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

Sustainable Equity Fund  vs.  Heritage Fund Investor

Sustainable Equity

Risk-Adjusted Performance

0 of 100

Very Weak

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

Heritage Fund Investor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Heritage Fund Investor has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Heritage 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 Sustainable Equity and Heritage Fund

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

The idea behind Sustainable Equity Fund and Heritage Fund Investor 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.