Correlation Between High Income and Value Fund

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

By analyzing existing cross correlation between High Income Fund and Value Fund R5, you can compare the effects of market volatilities on High Income 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 High Income with a short position of Value Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of High Income and Value Fund.

Diversification Opportunities for High Income and Value Fund

0.93

Correlation Coefficient

High Income  Value Fund

Almost no diversification

The 3 months correlation between High and Value is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding High Income Fund and Value Fund R5 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Value Fund R5 and High 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 High Income 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 R5 has no effect on the direction of High Income i.e., High Income and Value Fund go up and down completely randomly.

Pair Corralation between High Income and Value Fund

Assuming the 90 days horizon High Income is expected to generate 1.88 times less return on investment than Value Fund. But when comparing it to its historical volatility, High Income Fund is 3.68 times less risky than Value Fund. It trades about 0.21 of its potential returns per unit of risk. Value Fund R5 is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  788.00  in Value Fund R5 on May 12, 2025 and sell it today you would earn a total of  36.00  from holding Value Fund R5 or generate 4.57% return on investment over 90 days.

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

High Income Fund  vs.  Value Fund R5

High Income Fund

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in High Income Fund are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, High Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Value Fund R5

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Value Fund R5 are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental 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 High Income and Value Fund

The main advantage of trading using opposite High Income and Value Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if High Income 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 High Income Fund and Value Fund R5 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..