Correlation Between Income Growth and One Choice

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

By analyzing existing cross correlation between Income Growth Fund and One Choice 2035, you can compare the effects of market volatilities on Income Growth and One Choice 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 Growth with a short position of One Choice. Check out your portfolio center. Please also check ongoing floating volatility patterns of Income Growth and One Choice.

Diversification Opportunities for Income Growth and One Choice

0.9

Correlation Coefficient

Income Growth  One Choice

Almost no diversification

The 3 months correlation between Income and One is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Income Growth Fund and One Choice 2035 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on One Choice 2035 and Income 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 Income Growth Fund are associated (or correlated) with One Choice. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of One Choice 2035 has no effect on the direction of Income Growth i.e., Income Growth and One Choice go up and down completely randomly.

Pair Corralation between Income Growth and One Choice

Assuming the 90 days horizon Income Growth Fund is expected to under-perform the One Choice. In addition to that, Income Growth is 1.44 times more volatile than One Choice 2035. It trades about -0.05 of its total potential returns per unit of risk. One Choice 2035 is currently generating about 0.03 per unit of volatility. If you would invest  1,620  in One Choice 2035 on December 4, 2024 and sell it today you would earn a total of  4.00  from holding One Choice 2035 or generate 0.25% return on investment over 90 days.

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

Income Growth Fund  vs.  One Choice 2035

Income Growth

Risk-Adjusted Performance

Very Weak

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

One Choice 2035

Risk-Adjusted Performance

Very Weak

Over the last 90 days One Choice 2035 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, One Choice is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Income Growth and One Choice

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

The idea behind Income Growth Fund and One Choice 2035 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.