Correlation Between Growth Portfolio and Select Fund

Can any of the company-specific risk be diversified away by investing in both Growth Portfolio and Select Fund 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 Select Fund 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 Select Fund R, you can compare the effects of market volatilities on Growth Portfolio and Select Fund 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 Select Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Growth Portfolio and Select Fund.

Diversification Opportunities for Growth Portfolio and Select Fund

0.9

Correlation Coefficient

Growth Portfolio  Select Fund

Almost no diversification

The 3 months correlation between Growth and Select is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Growth Portfolio Class and Select Fund R in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select Fund R 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 Select Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select Fund R has no effect on the direction of Growth Portfolio i.e., Growth Portfolio and Select Fund go up and down completely randomly.

Pair Corralation between Growth Portfolio and Select Fund

Assuming the 90 days horizon Growth Portfolio Class is expected to generate 1.94 times more return on investment than Select Fund. However, Growth Portfolio is 1.94 times more volatile than Select Fund R. It trades about 0.46 of its potential returns per unit of risk. Select Fund R is currently generating about 0.36 per unit of risk. If you would invest  4,824  in Growth Portfolio Class on September 17, 2024 and sell it today you would earn a total of  673.00  from holding Growth Portfolio Class or generate 13.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.24%
Values	Daily Returns

Growth Portfolio Class  vs.  Select Fund R

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.

Select Fund R

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Select Fund R are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Select Fund may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Growth Portfolio and Select Fund

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

The idea behind Growth Portfolio Class and Select Fund R 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.