Correlation Between Value Fund and Capital Growth

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

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

Diversification Opportunities for Value Fund and Capital Growth

0.96

Correlation Coefficient

Value Fund  Capital Growth

Almost no diversification

The 3 months correlation between Value and Capital is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Value Fund Value and Capital Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Growth and Value 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 Value Fund Value are associated (or correlated) with Capital Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Growth has no effect on the direction of Value Fund i.e., Value Fund and Capital Growth go up and down completely randomly.

Pair Corralation between Value Fund and Capital Growth

Assuming the 90 days horizon Value Fund is expected to generate 1.34 times less return on investment than Capital Growth. In addition to that, Value Fund is 1.04 times more volatile than Capital Growth Fund. It trades about 0.04 of its total potential returns per unit of risk. Capital Growth Fund is currently generating about 0.05 per unit of volatility. If you would invest  1,032  in Capital Growth Fund on September 23, 2024 and sell it today you would earn a total of  242.00  from holding Capital Growth Fund or generate 23.45% return on investment over 90 days.

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

Value Fund Value  vs.  Capital Growth Fund

Value Fund Value

Risk-Adjusted Performance

0 of 100

Very Weak

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

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.

Pair Trading with Value Fund and Capital Growth

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

The idea behind Value Fund Value and Capital 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.