Correlation Between Spectrum Fund and Infrastructure Fund

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

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

Diversification Opportunities for Spectrum Fund and Infrastructure Fund

0.66

Correlation Coefficient

Spectrum Fund  Infrastructure Fund

Poor diversification

The 3 months correlation between Spectrum and Infrastructure is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Spectrum Fund Adviser and Infrastructure Fund Adviser in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Infrastructure Fund and Spectrum 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 Spectrum Fund Adviser are associated (or correlated) with Infrastructure Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Infrastructure Fund has no effect on the direction of Spectrum Fund i.e., Spectrum Fund and Infrastructure Fund go up and down completely randomly.

Pair Corralation between Spectrum Fund and Infrastructure Fund

Assuming the 90 days horizon Spectrum Fund Adviser is expected to under-perform the Infrastructure Fund. In addition to that, Spectrum Fund is 3.44 times more volatile than Infrastructure Fund Adviser. It trades about -0.11 of its total potential returns per unit of risk. Infrastructure Fund Adviser is currently generating about 0.01 per unit of volatility. If you would invest  2,389  in Infrastructure Fund Adviser on December 2, 2024 and sell it today you would earn a total of  5.00  from holding Infrastructure Fund Adviser or generate 0.21% return on investment over 90 days.

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

Spectrum Fund Adviser  vs.  Infrastructure Fund Adviser

Spectrum Fund Adviser

Risk-Adjusted Performance

Very Weak

Over the last 90 days Spectrum Fund Adviser 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.

Infrastructure Fund

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Spectrum Fund and Infrastructure Fund

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

The idea behind Spectrum Fund Adviser and Infrastructure Fund Adviser 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.