Correlation Between Balanced Fund and Dividend Opportunities

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

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

Diversification Opportunities for Balanced Fund and Dividend Opportunities

0.85

Correlation Coefficient

Balanced Fund  Dividend Opportunities

Very poor diversification

The 3 months correlation between Balanced and Dividend is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Balanced Fund Adviser and Dividend Opportunities Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dividend Opportunities and Balanced 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 Balanced Fund Adviser are associated (or correlated) with Dividend Opportunities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dividend Opportunities has no effect on the direction of Balanced Fund i.e., Balanced Fund and Dividend Opportunities go up and down completely randomly.

Pair Corralation between Balanced Fund and Dividend Opportunities

Assuming the 90 days horizon Balanced Fund Adviser is expected to under-perform the Dividend Opportunities. In addition to that, Balanced Fund is 1.31 times more volatile than Dividend Opportunities Fund. It trades about -0.02 of its total potential returns per unit of risk. Dividend Opportunities Fund is currently generating about -0.01 per unit of volatility. If you would invest  1,218  in Dividend Opportunities Fund on December 31, 2024 and sell it today you would lose (4.00) from holding Dividend Opportunities Fund or give up 0.33% of portfolio value over 90 days.

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

Balanced Fund Adviser  vs.  Dividend Opportunities Fund

Balanced Fund Adviser

Risk-Adjusted Performance

Very Weak

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

Dividend Opportunities

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Balanced Fund and Dividend Opportunities

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

The idea behind Balanced Fund Adviser and Dividend Opportunities 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.