Correlation Between Technology Fund and Short-term Income

Can any of the company-specific risk be diversified away by investing in both Technology Fund and Short-term Income 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 Technology Fund and Short-term Income into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Technology Fund Class and Short Term Income Fund, you can compare the effects of market volatilities on Technology Fund and Short-term Income 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 Technology Fund with a short position of Short-term Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Technology Fund and Short-term Income.

Diversification Opportunities for Technology Fund and Short-term Income

0.65

Correlation Coefficient

Technology Fund  Short-term Income

Poor diversification

The 3 months correlation between TECHNOLOGY and Short-term is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Technology Fund Class and Short Term Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Term Income and Technology Fund 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 Technology Fund Class are associated (or correlated) with Short-term Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Term Income has no effect on the direction of Technology Fund i.e., Technology Fund and Short-term Income go up and down completely randomly.

Pair Corralation between Technology Fund and Short-term Income

Assuming the 90 days horizon Technology Fund Class is expected to generate 7.74 times more return on investment than Short-term Income. However, Technology Fund is 7.74 times more volatile than Short Term Income Fund. It trades about 0.04 of its potential returns per unit of risk. Short Term Income Fund is currently generating about -0.01 per unit of risk. If you would invest  18,287  in Technology Fund Class on October 7, 2024 and sell it today you would earn a total of  595.00  from holding Technology Fund Class or generate 3.25% return on investment over 90 days.

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

Technology Fund Class  vs.  Short Term Income Fund

Technology Fund Class

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Technology Fund Class are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical indicators, Technology Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Short Term Income

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Technology Fund and Short-term Income

The main advantage of trading using opposite Technology Fund and Short-term Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Technology Fund position performs unexpectedly, Short-term Income 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 Short-term Income will offset losses from the drop in Short-term Income's long position.

The idea behind Technology Fund Class and Short Term Income 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.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.