Correlation Between Select Fund and Disciplined Growth

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

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

Diversification Opportunities for Select Fund and Disciplined Growth

0.23

Correlation Coefficient

Select Fund  Disciplined Growth

Modest diversification

The 3 months correlation between Select and Disciplined is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Select Fund R6 and Disciplined Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Disciplined Growth and Select Fund 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 Select Fund R6 are associated (or correlated) with Disciplined Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Disciplined Growth has no effect on the direction of Select Fund i.e., Select Fund and Disciplined Growth go up and down completely randomly.

Pair Corralation between Select Fund and Disciplined Growth

Assuming the 90 days horizon Select Fund R6 is expected to generate 0.17 times more return on investment than Disciplined Growth. However, Select Fund R6 is 5.89 times less risky than Disciplined Growth. It trades about -0.14 of its potential returns per unit of risk. Disciplined Growth Fund is currently generating about -0.22 per unit of risk. If you would invest  13,354  in Select Fund R6 on October 3, 2024 and sell it today you would lose (538.00) from holding Select Fund R6 or give up 4.03% of portfolio value over 90 days.

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

Select Fund R6  vs.  Disciplined Growth Fund

Select Fund R6

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Select Fund R6 are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Select Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Disciplined Growth

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Disciplined Growth Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Select Fund and Disciplined Growth

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

The idea behind Select Fund R6 and Disciplined Growth 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.

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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.