Correlation Between Equity Income and Heritage Fund

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

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

Diversification Opportunities for Equity Income and Heritage Fund

-0.05

Correlation Coefficient

Equity Income  Heritage Fund

Good diversification

The 3 months correlation between Equity and Heritage is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Equity Income Fund and Heritage Fund I in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heritage Fund I and Equity Income 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 Equity Income Fund are associated (or correlated) with Heritage Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heritage Fund I has no effect on the direction of Equity Income i.e., Equity Income and Heritage Fund go up and down completely randomly.

Pair Corralation between Equity Income and Heritage Fund

Assuming the 90 days horizon Equity Income Fund is expected to generate 0.38 times more return on investment than Heritage Fund. However, Equity Income Fund is 2.61 times less risky than Heritage Fund. It trades about 0.11 of its potential returns per unit of risk. Heritage Fund I is currently generating about -0.07 per unit of risk. If you would invest  835.00  in Equity Income Fund on December 22, 2024 and sell it today you would earn a total of  32.00  from holding Equity Income Fund or generate 3.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Equity Income Fund  vs.  Heritage Fund I

Equity Income

Risk-Adjusted Performance

OK

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

Heritage Fund I

Risk-Adjusted Performance

Very Weak

Over the last 90 days Heritage Fund I has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward 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 Equity Income and Heritage Fund

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

The idea behind Equity Income Fund and Heritage Fund I 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.