Correlation Between Icon Equity and Touchstone Focused

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

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

Diversification Opportunities for Icon Equity and Touchstone Focused

0.66

Correlation Coefficient

Icon Equity  Touchstone Focused

Poor diversification

The 3 months correlation between Icon and Touchstone is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Icon Equity Income and Touchstone Focused Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Touchstone Focused and Icon Equity 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 Icon Equity Income are associated (or correlated) with Touchstone Focused. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Touchstone Focused has no effect on the direction of Icon Equity i.e., Icon Equity and Touchstone Focused go up and down completely randomly.

Pair Corralation between Icon Equity and Touchstone Focused

Assuming the 90 days horizon Icon Equity is expected to generate 2.05 times less return on investment than Touchstone Focused. But when comparing it to its historical volatility, Icon Equity Income is 1.13 times less risky than Touchstone Focused. It trades about 0.06 of its potential returns per unit of risk. Touchstone Focused Fund is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  5,202  in Touchstone Focused Fund on December 2, 2024 and sell it today you would earn a total of  2,440  from holding Touchstone Focused Fund or generate 46.91% return on investment over 90 days.

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

Icon Equity Income  vs.  Touchstone Focused Fund

Icon Equity Income

Risk-Adjusted Performance

Very Weak

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

Touchstone Focused

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Icon Equity and Touchstone Focused

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

The idea behind Icon Equity Income and Touchstone Focused Fund 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.