Correlation Between Intermediate Term and Growth Fund

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

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

Diversification Opportunities for Intermediate Term and Growth Fund

-0.44

Correlation Coefficient

Intermediate Term  Growth Fund

Very good diversification

The 3 months correlation between Intermediate and Growth is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Intermediate Term Tax Free Bon and Growth Fund I in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Growth Fund I and Intermediate Term 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 Intermediate Term Tax Free Bond are associated (or correlated) with Growth Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Growth Fund I has no effect on the direction of Intermediate Term i.e., Intermediate Term and Growth Fund go up and down completely randomly.

Pair Corralation between Intermediate Term and Growth Fund

Assuming the 90 days horizon Intermediate Term is expected to generate 25.7 times less return on investment than Growth Fund. But when comparing it to its historical volatility, Intermediate Term Tax Free Bond is 4.86 times less risky than Growth Fund. It trades about 0.03 of its potential returns per unit of risk. Growth Fund I is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  5,738  in Growth Fund I on September 2, 2024 and sell it today you would earn a total of  576.00  from holding Growth Fund I or generate 10.04% return on investment over 90 days.

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

Intermediate Term Tax Free Bon  vs.  Growth Fund I

Intermediate Term Tax

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Intermediate Term Tax Free Bond are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Intermediate Term is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Growth Fund I

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Growth Fund I are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Growth Fund may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Intermediate Term and Growth Fund

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

The idea behind Intermediate Term Tax Free Bond and Growth 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.

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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.