Correlation Between Meridian Growth and Fam Value

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

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

Diversification Opportunities for Meridian Growth and Fam Value

0.92

Correlation Coefficient

Meridian Growth  Fam Value

Almost no diversification

The 3 months correlation between Meridian and Fam is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Meridian Growth Fund and Fam Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fam Value Fund and Meridian Growth 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 Meridian Growth Fund are associated (or correlated) with Fam Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fam Value Fund has no effect on the direction of Meridian Growth i.e., Meridian Growth and Fam Value go up and down completely randomly.

Pair Corralation between Meridian Growth and Fam Value

Assuming the 90 days horizon Meridian Growth Fund is expected to generate 1.18 times more return on investment than Fam Value. However, Meridian Growth is 1.18 times more volatile than Fam Value Fund. It trades about 0.06 of its potential returns per unit of risk. Fam Value Fund is currently generating about 0.06 per unit of risk. If you would invest  2,914  in Meridian Growth Fund on September 14, 2024 and sell it today you would earn a total of  880.00  from holding Meridian Growth Fund or generate 30.2% return on investment over 90 days.

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

Meridian Growth Fund  vs.  Fam Value Fund

Meridian Growth

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Meridian Growth Fund are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Meridian Growth is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Fam Value Fund

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fam Value Fund are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Fam Value may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Meridian Growth and Fam Value

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

The idea behind Meridian Growth Fund and Fam Value 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.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.