Correlation Between Growth Income and Aggressive Growth

Can any of the company-specific risk be diversified away by investing in both Growth Income and Aggressive 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 Aggressive 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 Aggressive Growth Fund, you can compare the effects of market volatilities on Growth Income and Aggressive 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 Aggressive Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Growth Income and Aggressive Growth.

Diversification Opportunities for Growth Income and Aggressive Growth

0.96

Correlation Coefficient

Growth Income  Aggressive Growth

Almost no diversification

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

Pair Corralation between Growth Income and Aggressive Growth

Assuming the 90 days horizon Growth Income is expected to generate 2.04 times less return on investment than Aggressive Growth. But when comparing it to its historical volatility, Growth Income Fund is 1.63 times less risky than Aggressive Growth. It trades about 0.14 of its potential returns per unit of risk. Aggressive Growth Fund is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  6,441  in Aggressive Growth Fund on September 16, 2024 and sell it today you would earn a total of  787.00  from holding Aggressive Growth Fund or generate 12.22% return on investment over 90 days.

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

Growth Income Fund  vs.  Aggressive Growth Fund

Growth Income

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Growth Income Fund are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Growth Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Aggressive Growth

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aggressive Growth Fund are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Aggressive Growth may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Growth Income and Aggressive Growth

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

The idea behind Growth Income Fund and Aggressive 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.