Correlation Between Growth Allocation and Value Equity
Can any of the company-specific risk be diversified away by investing in both Growth Allocation and Value 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 Growth Allocation and Value Equity into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Growth Allocation Fund and Value Equity Investor, you can compare the effects of market volatilities on Growth Allocation and Value 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 Growth Allocation with a short position of Value Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Growth Allocation and Value Equity.
Diversification Opportunities for Growth Allocation and Value Equity
0.39 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Growth and Value is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Growth Allocation Fund and Value Equity Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Value Equity Investor and Growth Allocation 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 Growth Allocation Fund are associated (or correlated) with Value Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Value Equity Investor has no effect on the direction of Growth Allocation i.e., Growth Allocation and Value Equity go up and down completely randomly.
Pair Corralation between Growth Allocation and Value Equity
Assuming the 90 days horizon Growth Allocation Fund is expected to generate 0.37 times more return on investment than Value Equity. However, Growth Allocation Fund is 2.72 times less risky than Value Equity. It trades about 0.07 of its potential returns per unit of risk. Value Equity Investor is currently generating about -0.05 per unit of risk. If you would invest 1,308 in Growth Allocation Fund on September 16, 2024 and sell it today you would earn a total of 27.00 from holding Growth Allocation Fund or generate 2.06% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Growth Allocation Fund vs. Value Equity Investor
Performance |
Timeline |
Growth Allocation |
Value Equity Investor |
Growth Allocation and Value Equity Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Growth Allocation and Value Equity
The main advantage of trading using opposite Growth Allocation and Value Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Growth Allocation position performs unexpectedly, Value 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 Value Equity will offset losses from the drop in Value Equity's long position.Growth Allocation vs. Defensive Market Strategies | Growth Allocation vs. Defensive Market Strategies | Growth Allocation vs. Value Equity Institutional | Growth Allocation vs. Value Equity Investor |
Value Equity vs. Growth Allocation Fund | Value Equity vs. Defensive Market Strategies | Value Equity vs. Defensive Market Strategies | Value Equity vs. Value Equity Institutional |
Check out your portfolio center.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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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