Correlation Between Long Term and Equity Growth

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

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

Diversification Opportunities for Long Term and Equity Growth

0.95

Correlation Coefficient

Long Term  Equity Growth

Almost no diversification

The 3 months correlation between Long and Equity is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding The Long Term and The Equity Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Growth and Long Term 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 The Long Term are associated (or correlated) with Equity Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Growth has no effect on the direction of Long Term i.e., Long Term and Equity Growth go up and down completely randomly.

Pair Corralation between Long Term and Equity Growth

Assuming the 90 days horizon Long Term is expected to generate 1.26 times less return on investment than Equity Growth. But when comparing it to its historical volatility, The Long Term is 1.32 times less risky than Equity Growth. It trades about 0.21 of its potential returns per unit of risk. The Equity Growth is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  2,288  in The Equity Growth on September 12, 2024 and sell it today you would earn a total of  585.00  from holding The Equity Growth or generate 25.57% return on investment over 90 days.

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

The Long Term  vs.  The Equity Growth

Long Term

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Long Term are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Long Term showed solid returns over the last few months and may actually be approaching a breakup point.

Equity Growth

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Equity Growth are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward-looking signals, Equity Growth showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Long Term and Equity Growth

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

The idea behind The Long Term and The Equity Growth 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.