Correlation Between Growth Strategy and Moderate Strategy

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

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

Diversification Opportunities for Growth Strategy and Moderate Strategy

0.88

Correlation Coefficient

Growth Strategy  Moderate Strategy

Very poor diversification

The 3 months correlation between Growth and Moderate is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Growth Strategy Fund and Moderate Strategy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Moderate Strategy and Growth Strategy 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 Strategy Fund are associated (or correlated) with Moderate Strategy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Moderate Strategy has no effect on the direction of Growth Strategy i.e., Growth Strategy and Moderate Strategy go up and down completely randomly.

Pair Corralation between Growth Strategy and Moderate Strategy

Assuming the 90 days horizon Growth Strategy Fund is expected to generate 1.6 times more return on investment than Moderate Strategy. However, Growth Strategy is 1.6 times more volatile than Moderate Strategy Fund. It trades about 0.07 of its potential returns per unit of risk. Moderate Strategy Fund is currently generating about 0.07 per unit of risk. If you would invest  1,036  in Growth Strategy Fund on February 17, 2025 and sell it today you would earn a total of  292.00  from holding Growth Strategy Fund or generate 28.19% return on investment over 90 days.

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

Growth Strategy Fund  vs.  Moderate Strategy Fund

Growth Strategy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Growth Strategy Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Growth Strategy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Moderate Strategy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Moderate Strategy Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Moderate Strategy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Growth Strategy and Moderate Strategy

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

The idea behind Growth Strategy Fund and Moderate Strategy 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.