Correlation Between Balanced Fund and Horizon Funds

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

By analyzing existing cross correlation between Balanced Fund Retail and Horizon Funds , you can compare the effects of market volatilities on Balanced Fund and Horizon Funds 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 Horizon Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Balanced Fund and Horizon Funds.

Diversification Opportunities for Balanced Fund and Horizon Funds

0.77

Correlation Coefficient

Balanced Fund  Horizon Funds

Poor diversification

The 3 months correlation between Balanced and Horizon is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Balanced Fund Retail and Horizon Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Horizon Funds 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 Retail are associated (or correlated) with Horizon Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Horizon Funds has no effect on the direction of Balanced Fund i.e., Balanced Fund and Horizon Funds go up and down completely randomly.

Pair Corralation between Balanced Fund and Horizon Funds

Assuming the 90 days horizon Balanced Fund Retail is expected to under-perform the Horizon Funds. In addition to that, Balanced Fund is 3.77 times more volatile than Horizon Funds . It trades about -0.05 of its total potential returns per unit of risk. Horizon Funds is currently generating about 0.04 per unit of volatility. If you would invest  4,704  in Horizon Funds on December 23, 2024 and sell it today you would earn a total of  19.00  from holding Horizon Funds or generate 0.4% return on investment over 90 days.

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

Balanced Fund Retail  vs.  Horizon Funds

Balanced Fund Retail

Risk-Adjusted Performance

Very Weak

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

Horizon Funds

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Horizon Funds are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Horizon Funds 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 Horizon Funds

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

The idea behind Balanced Fund Retail and Horizon Funds 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.