Correlation Between Value Fund and Balanced Fund

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

By analyzing existing cross correlation between Value Fund R5 and Balanced Fund Retail, you can compare the effects of market volatilities on Value Fund and Balanced 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 Value Fund with a short position of Balanced Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Value Fund and Balanced Fund.

Diversification Opportunities for Value Fund and Balanced Fund

0.33

Correlation Coefficient

Value Fund  Balanced Fund

Weak diversification

The 3 months correlation between Value and Balanced is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Value Fund R5 and Balanced Fund Retail in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Balanced Fund Retail and Value 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 Value Fund R5 are associated (or correlated) with Balanced Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Balanced Fund Retail has no effect on the direction of Value Fund i.e., Value Fund and Balanced Fund go up and down completely randomly.

Pair Corralation between Value Fund and Balanced Fund

Assuming the 90 days horizon Value Fund R5 is expected to generate 1.04 times more return on investment than Balanced Fund. However, Value Fund is 1.04 times more volatile than Balanced Fund Retail. It trades about 0.1 of its potential returns per unit of risk. Balanced Fund Retail is currently generating about -0.04 per unit of risk. If you would invest  769.00  in Value Fund R5 on December 20, 2024 and sell it today you would earn a total of  33.00  from holding Value Fund R5 or generate 4.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Value Fund R5  vs.  Balanced Fund Retail

Value Fund R5

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Value Fund R5 are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Value Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Balanced Fund Retail

Risk-Adjusted Performance

Very Weak

Over the last 90 days Balanced Fund Retail has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Balanced 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 Value Fund and Balanced Fund

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

The idea behind Value Fund R5 and Balanced Fund Retail 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.