Correlation Between Stock Index and Forum Funds

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

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

Diversification Opportunities for Stock Index and Forum Funds

0.22

Correlation Coefficient

Stock Index  Forum Funds

Modest diversification

The 3 months correlation between Stock and Forum is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Stock Index Fund and Forum Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Forum Funds and Stock Index 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 Stock Index Fund are associated (or correlated) with Forum Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Forum Funds has no effect on the direction of Stock Index i.e., Stock Index and Forum Funds go up and down completely randomly.

Pair Corralation between Stock Index and Forum Funds

Assuming the 90 days horizon Stock Index Fund is expected to under-perform the Forum Funds. In addition to that, Stock Index is 7.57 times more volatile than Forum Funds . It trades about -0.07 of its total potential returns per unit of risk. Forum Funds is currently generating about 0.15 per unit of volatility. If you would invest  1,031  in Forum Funds on December 20, 2024 and sell it today you would earn a total of  12.00  from holding Forum Funds or generate 1.16% return on investment over 90 days.

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

Stock Index Fund  vs.  Forum Funds

Stock Index Fund

Risk-Adjusted Performance

Very Weak

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

Forum Funds

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Forum Funds are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Forum 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 Stock Index and Forum Funds

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

The idea behind Stock Index Fund and Forum 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.