Correlation Between Capital Growth and Income Fund

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

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

Diversification Opportunities for Capital Growth and Income Fund

0.45

Correlation Coefficient

Capital Growth  Income Fund

Very weak diversification

The 3 months correlation between Capital and Income is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Capital Growth Fund and Income Fund Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Income Fund Income and Capital Growth 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 Capital Growth Fund are associated (or correlated) with Income Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Income Fund Income has no effect on the direction of Capital Growth i.e., Capital Growth and Income Fund go up and down completely randomly.

Pair Corralation between Capital Growth and Income Fund

Assuming the 90 days horizon Capital Growth Fund is expected to under-perform the Income Fund. In addition to that, Capital Growth is 5.86 times more volatile than Income Fund Income. It trades about -0.28 of its total potential returns per unit of risk. Income Fund Income is currently generating about -0.09 per unit of volatility. If you would invest  1,147  in Income Fund Income on September 23, 2024 and sell it today you would lose (9.00) from holding Income Fund Income or give up 0.78% of portfolio value over 90 days.

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

Capital Growth Fund  vs.  Income Fund Income

Capital Growth

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capital Growth Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Income Fund Income

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Capital Growth and Income Fund

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

The idea behind Capital Growth Fund and Income Fund Income 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .