Correlation Between New Economy and Sound Shore
Can any of the company-specific risk be diversified away by investing in both New Economy and Sound Shore 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 Sound Shore 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 Sound Shore Fund, you can compare the effects of market volatilities on New Economy and Sound Shore 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 Sound Shore. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Economy and Sound Shore.
Diversification Opportunities for New Economy and Sound Shore
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between New and Sound is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding New Economy Fund and Sound Shore Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sound Shore Fund 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 Sound Shore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sound Shore Fund has no effect on the direction of New Economy i.e., New Economy and Sound Shore go up and down completely randomly.
Pair Corralation between New Economy and Sound Shore
Assuming the 90 days horizon New Economy Fund is expected to generate 1.26 times more return on investment than Sound Shore. However, New Economy is 1.26 times more volatile than Sound Shore Fund. It trades about 0.15 of its potential returns per unit of risk. Sound Shore Fund is currently generating about 0.14 per unit of risk. If you would invest 6,141 in New Economy Fund on September 14, 2024 and sell it today you would earn a total of 474.00 from holding New Economy Fund or generate 7.72% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
New Economy Fund vs. Sound Shore Fund
Performance |
Timeline |
New Economy Fund |
Sound Shore Fund |
New Economy and Sound Shore Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with New Economy and Sound Shore
The main advantage of trading using opposite New Economy and Sound Shore positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New Economy position performs unexpectedly, Sound Shore 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 Sound Shore will offset losses from the drop in Sound Shore's long position.New Economy vs. New Perspective Fund | New Economy vs. Growth Fund Of | New Economy vs. New World Fund | New Economy vs. American Funds Fundamental |
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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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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