Correlation Between Growth Portfolio and Focused Dynamic

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

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

Diversification Opportunities for Growth Portfolio and Focused Dynamic

0.97

Correlation Coefficient

Growth Portfolio  Focused Dynamic

Almost no diversification

The 3 months correlation between Growth and Focused is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Growth Portfolio Class and Focused Dynamic Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Focused Dynamic Growth and Growth Portfolio 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 Portfolio Class are associated (or correlated) with Focused Dynamic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Focused Dynamic Growth has no effect on the direction of Growth Portfolio i.e., Growth Portfolio and Focused Dynamic go up and down completely randomly.

Pair Corralation between Growth Portfolio and Focused Dynamic

Assuming the 90 days horizon Growth Portfolio Class is expected to generate 1.42 times more return on investment than Focused Dynamic. However, Growth Portfolio is 1.42 times more volatile than Focused Dynamic Growth. It trades about 0.35 of its potential returns per unit of risk. Focused Dynamic Growth is currently generating about 0.25 per unit of risk. If you would invest  3,737  in Growth Portfolio Class on September 15, 2024 and sell it today you would earn a total of  1,631  from holding Growth Portfolio Class or generate 43.64% return on investment over 90 days.

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

Growth Portfolio Class  vs.  Focused Dynamic Growth

Growth Portfolio Class

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Growth Portfolio Class are ranked lower than 27 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Growth Portfolio showed solid returns over the last few months and may actually be approaching a breakup point.

Focused Dynamic Growth

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Focused Dynamic Growth are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Focused Dynamic showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Growth Portfolio and Focused Dynamic

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

The idea behind Growth Portfolio Class and Focused Dynamic Growth 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.