Correlation Between New Economy and Absolute Capital

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

By analyzing existing cross correlation between New Economy Fund and Absolute Capital Defender, you can compare the effects of market volatilities on New Economy and Absolute Capital 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 New Economy with a short position of Absolute Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Economy and Absolute Capital.

Diversification Opportunities for New Economy and Absolute Capital

0.76

Correlation Coefficient

New Economy  Absolute Capital

Poor diversification

The 3 months correlation between New and Absolute is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding New Economy Fund and Absolute Capital Defender in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Absolute Capital Defender and New Economy 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 New Economy Fund are associated (or correlated) with Absolute Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Absolute Capital Defender has no effect on the direction of New Economy i.e., New Economy and Absolute Capital go up and down completely randomly.

Pair Corralation between New Economy and Absolute Capital

Assuming the 90 days horizon New Economy Fund is expected to under-perform the Absolute Capital. In addition to that, New Economy is 2.83 times more volatile than Absolute Capital Defender. It trades about -0.05 of its total potential returns per unit of risk. Absolute Capital Defender is currently generating about 0.01 per unit of volatility. If you would invest  1,070  in Absolute Capital Defender on September 21, 2024 and sell it today you would earn a total of  4.00  from holding Absolute Capital Defender or generate 0.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

New Economy Fund  vs.  Absolute Capital Defender

New Economy Fund

Risk-Adjusted Performance

0 of 100

Very Weak

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

Absolute Capital Defender

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Absolute Capital Defender are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Absolute Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with New Economy and Absolute Capital

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

The idea behind New Economy Fund and Absolute Capital Defender 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 Transaction History module to view history of all your transactions and understand their impact on performance.