Correlation Between Equity Growth and Equity Growth

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

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

Diversification Opportunities for Equity Growth and Equity Growth

1.0

Correlation Coefficient

Equity Growth  Equity Growth

No risk reduction

The 3 months correlation between Equity and Equity is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Equity Growth Strategy and Equity Growth Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Growth Strategy and Equity 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 Equity Growth Strategy are associated (or correlated) with Equity Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Growth Strategy has no effect on the direction of Equity Growth i.e., Equity Growth and Equity Growth go up and down completely randomly.

Pair Corralation between Equity Growth and Equity Growth

Assuming the 90 days horizon Equity Growth Strategy is expected to generate 0.99 times more return on investment than Equity Growth. However, Equity Growth Strategy is 1.01 times less risky than Equity Growth. It trades about 0.12 of its potential returns per unit of risk. Equity Growth Strategy is currently generating about 0.11 per unit of risk. If you would invest  1,259  in Equity Growth Strategy on December 3, 2024 and sell it today you would earn a total of  362.00  from holding Equity Growth Strategy or generate 28.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.7%
Values	Daily Returns

Equity Growth Strategy  vs.  Equity Growth Strategy

Equity Growth Strategy

Risk-Adjusted Performance

Very Weak

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

Equity Growth Strategy

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Equity Growth and Equity Growth

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

The idea behind Equity Growth Strategy and Equity Growth Strategy 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.