Correlation Between New Economy and Horizon Esg

Can any of the company-specific risk be diversified away by investing in both New Economy and Horizon Esg 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 Horizon Esg 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 Horizon Esg Defensive, you can compare the effects of market volatilities on New Economy and Horizon Esg 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 Horizon Esg. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Economy and Horizon Esg.

Diversification Opportunities for New Economy and Horizon Esg

0.85

Correlation Coefficient

New Economy  Horizon Esg

Very poor diversification

The 3 months correlation between New and Horizon is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding New Economy Fund and Horizon Esg Defensive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Horizon Esg Defensive 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 Horizon Esg. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Horizon Esg Defensive has no effect on the direction of New Economy i.e., New Economy and Horizon Esg go up and down completely randomly.

Pair Corralation between New Economy and Horizon Esg

Assuming the 90 days horizon New Economy Fund is expected to generate 1.15 times more return on investment than Horizon Esg. However, New Economy is 1.15 times more volatile than Horizon Esg Defensive. It trades about -0.04 of its potential returns per unit of risk. Horizon Esg Defensive is currently generating about -0.1 per unit of risk. If you would invest  6,255  in New Economy Fund on December 26, 2024 and sell it today you would lose (206.00) from holding New Economy Fund or give up 3.29% of portfolio value over 90 days.

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

New Economy Fund  vs.  Horizon Esg Defensive

New Economy Fund

Risk-Adjusted Performance

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.

Horizon Esg Defensive

Risk-Adjusted Performance

Very Weak

Over the last 90 days Horizon Esg Defensive has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with New Economy and Horizon Esg

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

The idea behind New Economy Fund and Horizon Esg Defensive 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.