Correlation Between Income Stock and Value Fund

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

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

Diversification Opportunities for Income Stock and Value Fund

0.98

Correlation Coefficient

Income Stock  Value Fund

Almost no diversification

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

Pair Corralation between Income Stock and Value Fund

Assuming the 90 days horizon Income Stock is expected to generate 1.64 times less return on investment than Value Fund. But when comparing it to its historical volatility, Income Stock Fund is 1.04 times less risky than Value Fund. It trades about 0.05 of its potential returns per unit of risk. Value Fund Value is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,106  in Value Fund Value on September 15, 2024 and sell it today you would earn a total of  75.00  from holding Value Fund Value or generate 3.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.46%
Values	Daily Returns

Income Stock Fund  vs.  Value Fund Value

Income Stock

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Income Stock Fund are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Income Stock is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Value Fund Value

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Value Fund Value are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, Value 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 Income Stock and Value Fund

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

The idea behind Income Stock Fund and Value Fund Value 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.