Correlation Between Income Fund and Balanced Fund

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

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

Diversification Opportunities for Income Fund and Balanced Fund

-0.67

Correlation Coefficient

Income Fund  Balanced Fund

Excellent diversification

The 3 months correlation between Income and Balanced is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Income Fund Institutional and Balanced Fund Institutional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Balanced Fund Instit and Income 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 Income Fund Institutional are associated (or correlated) with Balanced Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Balanced Fund Instit has no effect on the direction of Income Fund i.e., Income Fund and Balanced Fund go up and down completely randomly.

Pair Corralation between Income Fund and Balanced Fund

Assuming the 90 days horizon Income Fund Institutional is expected to under-perform the Balanced Fund. But the mutual fund apears to be less risky and, when comparing its historical volatility, Income Fund Institutional is 1.38 times less risky than Balanced Fund. The mutual fund trades about -0.04 of its potential returns per unit of risk. The Balanced Fund Institutional is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1,994  in Balanced Fund Institutional on August 31, 2024 and sell it today you would earn a total of  103.00  from holding Balanced Fund Institutional or generate 5.17% return on investment over 90 days.

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

Income Fund Institutional  vs.  Balanced Fund Institutional

Income Fund Institutional

Risk-Adjusted Performance

0 of 100

Very Weak

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

Balanced Fund Instit

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Balanced Fund Institutional are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. 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.

Pair Trading with Income Fund and Balanced Fund

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

The idea behind Income Fund Institutional and Balanced Fund Institutional 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.