Correlation Between Equity Growth and Strategic Allocation
Can any of the company-specific risk be diversified away by investing in both Equity Growth and Strategic Allocation 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 Strategic Allocation 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 Strategic Allocation Moderate, you can compare the effects of market volatilities on Equity Growth and Strategic Allocation 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 Strategic Allocation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equity Growth and Strategic Allocation.
Diversification Opportunities for Equity Growth and Strategic Allocation
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Equity and Strategic is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Equity Growth Strategy and Strategic Allocation Moderate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Strategic Allocation 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 Strategic Allocation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Strategic Allocation has no effect on the direction of Equity Growth i.e., Equity Growth and Strategic Allocation go up and down completely randomly.
Pair Corralation between Equity Growth and Strategic Allocation
Assuming the 90 days horizon Equity Growth Strategy is expected to generate 1.27 times more return on investment than Strategic Allocation. However, Equity Growth is 1.27 times more volatile than Strategic Allocation Moderate. It trades about 0.08 of its potential returns per unit of risk. Strategic Allocation Moderate is currently generating about 0.07 per unit of risk. If you would invest 1,240 in Equity Growth Strategy on December 5, 2024 and sell it today you would earn a total of 267.00 from holding Equity Growth Strategy or generate 21.53% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Equity Growth Strategy vs. Strategic Allocation Moderate
Performance |
Timeline |
Equity Growth Strategy |
Strategic Allocation |
Equity Growth and Strategic Allocation Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Equity Growth and Strategic Allocation
The main advantage of trading using opposite Equity Growth and Strategic Allocation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity Growth position performs unexpectedly, Strategic Allocation 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 Strategic Allocation will offset losses from the drop in Strategic Allocation's long position.Equity Growth vs. Metropolitan West Ultra | Equity Growth vs. Ashmore Emerging Markets | Equity Growth vs. Blackrock Global Longshort | Equity Growth vs. Transamerica Short Term Bond |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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