Correlation Between Equity Growth and Value Fund

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

By analyzing existing cross correlation between Equity Growth Fund and Value Fund R6, you can compare the effects of market volatilities on Equity Growth and Value 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 Equity Growth with a short position of Value Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equity Growth and Value Fund.

Diversification Opportunities for Equity Growth and Value Fund

0.03

Correlation Coefficient

Equity Growth  Value Fund

Significant diversification

The 3 months correlation between Equity and Value is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Equity Growth Fund and Value Fund R6 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Value Fund R6 and Equity 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 Equity Growth Fund are associated (or correlated) with Value Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Value Fund R6 has no effect on the direction of Equity Growth i.e., Equity Growth and Value Fund go up and down completely randomly.

Pair Corralation between Equity Growth and Value Fund

Assuming the 90 days horizon Equity Growth Fund is expected to generate 0.49 times more return on investment than Value Fund. However, Equity Growth Fund is 2.06 times less risky than Value Fund. It trades about -0.14 of its potential returns per unit of risk. Value Fund R6 is currently generating about -0.28 per unit of risk. If you would invest  3,486  in Equity Growth Fund on October 10, 2024 and sell it today you would lose (99.00) from holding Equity Growth Fund or give up 2.84% of portfolio value over 90 days.

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

Equity Growth Fund  vs.  Value Fund R6

Equity Growth

Risk-Adjusted Performance

4 of 100

Insignificant

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

Value Fund R6

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Value Fund R6 has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Equity Growth and Value Fund

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

The idea behind Equity Growth Fund and Value Fund R6 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.