Correlation Between Growth Income and World Growth

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

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

Diversification Opportunities for Growth Income and World Growth

0.98

Correlation Coefficient

Growth Income  World Growth

Almost no diversification

The 3 months correlation between Growth and World is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Growth Income Fund and World Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on World Growth and Growth 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 Growth Income Fund are associated (or correlated) with World Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of World Growth has no effect on the direction of Growth Income i.e., Growth Income and World Growth go up and down completely randomly.

Pair Corralation between Growth Income and World Growth

Assuming the 90 days horizon Growth Income Fund is expected to under-perform the World Growth. But the mutual fund apears to be less risky and, when comparing its historical volatility, Growth Income Fund is 1.07 times less risky than World Growth. The mutual fund trades about -0.05 of its potential returns per unit of risk. The World Growth Fund is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  3,019  in World Growth Fund on December 26, 2024 and sell it today you would lose (66.00) from holding World Growth Fund or give up 2.19% of portfolio value over 90 days.

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

Growth Income Fund  vs.  World Growth Fund

Growth Income

Risk-Adjusted Performance

Very Weak

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

World Growth

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Growth Income and World Growth

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

The idea behind Growth Income Fund and World Growth 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.