Correlation Between Select Us and Growth Strategy

Can any of the company-specific risk be diversified away by investing in both Select Us and Growth Strategy 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 Select Us and Growth Strategy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Select Equity Fund and Growth Strategy Fund, you can compare the effects of market volatilities on Select Us and Growth Strategy 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 Select Us with a short position of Growth Strategy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Select Us and Growth Strategy.

Diversification Opportunities for Select Us and Growth Strategy

0.72

Correlation Coefficient

Select Us  Growth Strategy

Poor diversification

The 3 months correlation between Select and Growth is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Select Equity Fund and Growth Strategy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Growth Strategy and Select Us 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 Select Equity Fund are associated (or correlated) with Growth Strategy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Growth Strategy has no effect on the direction of Select Us i.e., Select Us and Growth Strategy go up and down completely randomly.

Pair Corralation between Select Us and Growth Strategy

Assuming the 90 days horizon Select Equity Fund is expected to under-perform the Growth Strategy. In addition to that, Select Us is 1.42 times more volatile than Growth Strategy Fund. It trades about -0.09 of its total potential returns per unit of risk. Growth Strategy Fund is currently generating about 0.01 per unit of volatility. If you would invest  1,152  in Growth Strategy Fund on December 29, 2024 and sell it today you would earn a total of  2.00  from holding Growth Strategy Fund or generate 0.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Select Equity Fund  vs.  Growth Strategy Fund

Select Equity

Risk-Adjusted Performance

Very Weak

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

Growth Strategy

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Select Us and Growth Strategy

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

The idea behind Select Equity Fund and Growth Strategy Fund 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.