Correlation Between Short-term Fund and Cargile Fund

Can any of the company-specific risk be diversified away by investing in both Short-term Fund and Cargile 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 Short-term Fund and Cargile Fund into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Short Term Fund A and Cargile Fund, you can compare the effects of market volatilities on Short-term Fund and Cargile 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 Short-term Fund with a short position of Cargile Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short-term Fund and Cargile Fund.

Diversification Opportunities for Short-term Fund and Cargile Fund

0.58

Correlation Coefficient

Short-term Fund  Cargile Fund

Very weak diversification

The 3 months correlation between Short-term and Cargile is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Short Term Fund A and Cargile Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cargile Fund and Short-term Fund 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 Short Term Fund A are associated (or correlated) with Cargile Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cargile Fund has no effect on the direction of Short-term Fund i.e., Short-term Fund and Cargile Fund go up and down completely randomly.

Pair Corralation between Short-term Fund and Cargile Fund

Assuming the 90 days horizon Short Term Fund A is expected to generate 0.16 times more return on investment than Cargile Fund. However, Short Term Fund A is 6.27 times less risky than Cargile Fund. It trades about 0.24 of its potential returns per unit of risk. Cargile Fund is currently generating about 0.01 per unit of risk. If you would invest  864.00  in Short Term Fund A on October 4, 2024 and sell it today you would earn a total of  104.00  from holding Short Term Fund A or generate 12.04% return on investment over 90 days.

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

Short Term Fund A  vs.  Cargile Fund

Short Term Fund

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Short Term Fund A are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Short-term Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Cargile Fund

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Short-term Fund and Cargile Fund

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

The idea behind Short Term Fund A and Cargile 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.