Correlation Between Eafe Fund and Equity Growth

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

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

Diversification Opportunities for Eafe Fund and Equity Growth

0.94

Correlation Coefficient

Eafe Fund  Equity Growth

Almost no diversification

The 3 months correlation between Eafe and Equity is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding The Eafe Fund and The Equity Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Growth and Eafe 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 The Eafe Fund are associated (or correlated) with Equity Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Growth has no effect on the direction of Eafe Fund i.e., Eafe Fund and Equity Growth go up and down completely randomly.

Pair Corralation between Eafe Fund and Equity Growth

Assuming the 90 days horizon Eafe Fund is expected to generate 3.59 times less return on investment than Equity Growth. But when comparing it to its historical volatility, The Eafe Fund is 1.36 times less risky than Equity Growth. It trades about 0.08 of its potential returns per unit of risk. The Equity Growth is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  2,564  in The Equity Growth on May 4, 2025 and sell it today you would earn a total of  460.00  from holding The Equity Growth or generate 17.94% return on investment over 90 days.

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

The Eafe Fund  vs.  The Equity Growth

Eafe Fund

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Eafe Fund are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward-looking signals, Eafe Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Equity Growth

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Equity Growth are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward-looking signals, Equity Growth showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eafe Fund and Equity Growth

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

The idea behind The Eafe Fund and The Equity Growth 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 Anywhere module to track or share privately all of your investments from the convenience of any device.