Correlation Between New Economy and Primecap Odyssey

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

Diversification Opportunities for New Economy and Primecap Odyssey

0.29

Correlation Coefficient

New Economy  Primecap Odyssey

Modest diversification

The 3 months correlation between New and Primecap is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding New Economy Fund and Primecap Odyssey Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Primecap Odyssey Growth 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 Primecap Odyssey. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Primecap Odyssey Growth has no effect on the direction of New Economy i.e., New Economy and Primecap Odyssey go up and down completely randomly.

Pair Corralation between New Economy and Primecap Odyssey

Assuming the 90 days horizon New Economy Fund is expected to under-perform the Primecap Odyssey. In addition to that, New Economy is 1.79 times more volatile than Primecap Odyssey Growth. It trades about -0.09 of its total potential returns per unit of risk. Primecap Odyssey Growth is currently generating about 0.01 per unit of volatility. If you would invest  3,555  in Primecap Odyssey Growth on December 1, 2024 and sell it today you would earn a total of  7.00  from holding Primecap Odyssey Growth or generate 0.2% return on investment over 90 days.

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

New Economy Fund  vs.  Primecap Odyssey Growth

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 latest weak performance, the Fund's technical indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Primecap Odyssey Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Primecap Odyssey Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Primecap Odyssey 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 Primecap Odyssey

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

The idea behind New Economy Fund and Primecap Odyssey Growth 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.