Correlation Between The National and Growth Portfolio

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

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

Diversification Opportunities for The National and Growth Portfolio

0.28

Correlation Coefficient

The National  Growth Portfolio

Modest diversification

The 3 months correlation between The and Growth is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding The National Tax Free and Growth Portfolio Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Growth Portfolio Class and The National 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 National Tax Free are associated (or correlated) with Growth Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Growth Portfolio Class has no effect on the direction of The National i.e., The National and Growth Portfolio go up and down completely randomly.

Pair Corralation between The National and Growth Portfolio

Assuming the 90 days horizon The National is expected to generate 16.25 times less return on investment than Growth Portfolio. But when comparing it to its historical volatility, The National Tax Free is 9.52 times less risky than Growth Portfolio. It trades about 0.05 of its potential returns per unit of risk. Growth Portfolio Class is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  4,099  in Growth Portfolio Class on December 4, 2024 and sell it today you would earn a total of  1,607  from holding Growth Portfolio Class or generate 39.2% return on investment over 90 days.

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

The National Tax Free  vs.  Growth Portfolio Class

National Tax

Risk-Adjusted Performance

Very Weak

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

Growth Portfolio Class

Risk-Adjusted Performance

Very Weak

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

Pair Trading with The National and Growth Portfolio

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

The idea behind The National Tax Free and Growth Portfolio Class 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.