Correlation Between Enhanced and Us Equity

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

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

Diversification Opportunities for Enhanced and Us Equity

0.91

Correlation Coefficient

Enhanced  Us Equity

Almost no diversification

The 3 months correlation between Enhanced and BGGSX is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Enhanced Large Pany and The Equity Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Growth and Enhanced 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 Enhanced Large Pany are associated (or correlated) with Us Equity. 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 Enhanced i.e., Enhanced and Us Equity go up and down completely randomly.

Pair Corralation between Enhanced and Us Equity

Assuming the 90 days horizon Enhanced Large Pany is expected to under-perform the Us Equity. But the mutual fund apears to be less risky and, when comparing its historical volatility, Enhanced Large Pany is 1.92 times less risky than Us Equity. The mutual fund trades about -0.09 of its potential returns per unit of risk. The The Equity Growth is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  2,671  in The Equity Growth on December 29, 2024 and sell it today you would lose (138.00) from holding The Equity Growth or give up 5.17% of portfolio value over 90 days.

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

Enhanced Large Pany  vs.  The Equity Growth

Enhanced Large Pany

Risk-Adjusted Performance

Very Weak

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

Equity Growth

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Enhanced and Us Equity

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

The idea behind Enhanced Large Pany 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.