Correlation Between Value Fund and Equity Income

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

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

Diversification Opportunities for Value Fund and Equity Income

0.99

Correlation Coefficient

Value Fund  Equity Income

No risk reduction

The 3 months correlation between Value and Equity is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Value Fund I and Equity Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Income 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 I are associated (or correlated) with Equity Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Income has no effect on the direction of Value Fund i.e., Value Fund and Equity Income go up and down completely randomly.

Pair Corralation between Value Fund and Equity Income

Assuming the 90 days horizon Value Fund I is expected to generate 1.28 times more return on investment than Equity Income. However, Value Fund is 1.28 times more volatile than Equity Income Fund. It trades about 0.13 of its potential returns per unit of risk. Equity Income Fund is currently generating about 0.13 per unit of risk. If you would invest  787.00  in Value Fund I on May 15, 2025 and sell it today you would earn a total of  46.00  from holding Value Fund I or generate 5.84% 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 I  vs.  Equity Income Fund

Value Fund I

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Value Fund I are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Value Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Equity Income

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Equity Income Fund are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Equity 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 Value Fund and Equity Income

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

The idea behind Value Fund I and Equity 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.