Correlation Between Income Growth and Growth Fund

Can any of the company-specific risk be diversified away by investing in both Income Growth and Growth 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 Income Growth and Growth Fund 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 Growth Fund Investor, you can compare the effects of market volatilities on Income Growth and Growth 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 Income Growth with a short position of Growth Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Income Growth and Growth Fund.

Diversification Opportunities for Income Growth and Growth Fund

0.92

Correlation Coefficient

Income Growth  Growth Fund

Almost no diversification

The 3 months correlation between Income and Growth is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Income Growth Fund and Growth Fund Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Growth Fund Investor 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 Growth Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Growth Fund Investor has no effect on the direction of Income Growth i.e., Income Growth and Growth Fund go up and down completely randomly.

Pair Corralation between Income Growth and Growth Fund

Assuming the 90 days horizon Income Growth is expected to generate 1.35 times less return on investment than Growth Fund. But when comparing it to its historical volatility, Income Growth Fund is 1.42 times less risky than Growth Fund. It trades about 0.17 of its potential returns per unit of risk. Growth Fund Investor is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  5,545  in Growth Fund Investor on September 2, 2024 and sell it today you would earn a total of  554.00  from holding Growth Fund Investor or generate 9.99% 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.  Growth Fund Investor

Income Growth

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Income Growth Fund are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Income Growth may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Growth Fund Investor

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Growth Fund Investor are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Growth Fund may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Income Growth and Growth Fund

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

The idea behind Income Growth Fund and Growth 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.