Correlation Between Growth Fund and High Income

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

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

Diversification Opportunities for Growth Fund and High Income

0.67

Correlation Coefficient

Growth Fund  High Income

Poor diversification

The 3 months correlation between Growth and High is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Growth Fund Growth and High Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on High Income Fund and Growth 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 Growth Fund Growth are associated (or correlated) with High Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of High Income Fund has no effect on the direction of Growth Fund i.e., Growth Fund and High Income go up and down completely randomly.

Pair Corralation between Growth Fund and High Income

Assuming the 90 days horizon Growth Fund Growth is expected to generate 7.05 times more return on investment than High Income. However, Growth Fund is 7.05 times more volatile than High Income Fund. It trades about 0.06 of its potential returns per unit of risk. High Income Fund is currently generating about 0.16 per unit of risk. If you would invest  3,462  in Growth Fund Growth on September 24, 2024 and sell it today you would earn a total of  434.00  from holding Growth Fund Growth or generate 12.54% return on investment over 90 days.

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

Growth Fund Growth  vs.  High Income Fund

Growth Fund Growth

Risk-Adjusted Performance

0 of 100

Very Weak

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

High Income Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days High Income Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, High Income 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 Fund and High Income

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

The idea behind Growth Fund Growth and High Income 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.