Correlation Between Value Fund and Core Plus

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

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

Diversification Opportunities for Value Fund and Core Plus

0.61

Correlation Coefficient

Value Fund  Core Plus

Poor diversification

The 3 months correlation between Value and Core is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Value Fund A and Core Plus Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Core Plus Fund and Value 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 Value Fund A are associated (or correlated) with Core Plus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Core Plus Fund has no effect on the direction of Value Fund i.e., Value Fund and Core Plus go up and down completely randomly.

Pair Corralation between Value Fund and Core Plus

Assuming the 90 days horizon Value Fund A is expected to generate 2.48 times more return on investment than Core Plus. However, Value Fund is 2.48 times more volatile than Core Plus Fund. It trades about 0.09 of its potential returns per unit of risk. Core Plus Fund is currently generating about 0.11 per unit of risk. If you would invest  774.00  in Value Fund A on December 25, 2024 and sell it today you would earn a total of  28.00  from holding Value Fund A or generate 3.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

Value Fund A  vs.  Core Plus Fund

Value Fund A

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Value Fund A are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Value Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Core Plus Fund

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Core Plus Fund are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward-looking signals, Core Plus is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Value Fund and Core Plus

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

The idea behind Value Fund A and Core Plus 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.