Correlation Between Balanced Fund and New Economy

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

By analyzing existing cross correlation between Balanced Fund Investor and New Economy Fund, you can compare the effects of market volatilities on Balanced Fund and New Economy 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 New Economy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Balanced Fund and New Economy.

Diversification Opportunities for Balanced Fund and New Economy

0.95

Correlation Coefficient

Balanced Fund  New Economy

Almost no diversification

The 3 months correlation between Balanced and New is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Balanced Fund Investor and New Economy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Economy Fund 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 Investor are associated (or correlated) with New Economy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Economy Fund has no effect on the direction of Balanced Fund i.e., Balanced Fund and New Economy go up and down completely randomly.

Pair Corralation between Balanced Fund and New Economy

Assuming the 90 days horizon Balanced Fund Investor is expected to under-perform the New Economy. But the mutual fund apears to be less risky and, when comparing its historical volatility, Balanced Fund Investor is 1.94 times less risky than New Economy. The mutual fund trades about -0.09 of its potential returns per unit of risk. The New Economy Fund is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  6,194  in New Economy Fund on December 26, 2024 and sell it today you would lose (207.00) from holding New Economy Fund or give up 3.34% of portfolio value over 90 days.

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

Balanced Fund Investor  vs.  New Economy Fund

Balanced Fund Investor

Risk-Adjusted Performance

Very Weak

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

New Economy Fund

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Balanced Fund and New Economy

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

The idea behind Balanced Fund Investor and New Economy 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.