Correlation Between Balanced Fund and Fundamental Large

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

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

Diversification Opportunities for Balanced Fund and Fundamental Large

0.21

Correlation Coefficient

Balanced Fund  Fundamental Large

Modest diversification

The 3 months correlation between Balanced and Fundamental is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Balanced Fund Class and Fundamental Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fundamental Large Cap and Balanced 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 Balanced Fund Class are associated (or correlated) with Fundamental Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fundamental Large Cap has no effect on the direction of Balanced Fund i.e., Balanced Fund and Fundamental Large go up and down completely randomly.

Pair Corralation between Balanced Fund and Fundamental Large

Assuming the 90 days horizon Balanced Fund Class is expected to generate 0.61 times more return on investment than Fundamental Large. However, Balanced Fund Class is 1.64 times less risky than Fundamental Large. It trades about -0.05 of its potential returns per unit of risk. Fundamental Large Cap is currently generating about -0.11 per unit of risk. If you would invest  2,895  in Balanced Fund Class on December 24, 2024 and sell it today you would lose (61.00) from holding Balanced Fund Class or give up 2.11% of portfolio value over 90 days.

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

Balanced Fund Class  vs.  Fundamental Large Cap

Balanced Fund Class

Risk-Adjusted Performance

Very Weak

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

Fundamental Large Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fundamental Large Cap 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.

Pair Trading with Balanced Fund and Fundamental Large

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

The idea behind Balanced Fund Class and Fundamental Large Cap 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.