Correlation Between Moderate Strategy and Growth Allocation

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

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

Diversification Opportunities for Moderate Strategy and Growth Allocation

0.7

Correlation Coefficient

Moderate Strategy  Growth Allocation

Poor diversification

The 3 months correlation between Moderate and Growth is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Moderate Strategy Fund and Growth Allocation Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Growth Allocation and Moderate 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 Moderate Strategy Fund are associated (or correlated) with Growth Allocation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Growth Allocation has no effect on the direction of Moderate Strategy i.e., Moderate Strategy and Growth Allocation go up and down completely randomly.

Pair Corralation between Moderate Strategy and Growth Allocation

Assuming the 90 days horizon Moderate Strategy is expected to generate 1.3 times less return on investment than Growth Allocation. But when comparing it to its historical volatility, Moderate Strategy Fund is 1.48 times less risky than Growth Allocation. It trades about 0.21 of its potential returns per unit of risk. Growth Allocation Fund is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,329  in Growth Allocation Fund on May 20, 2025 and sell it today you would earn a total of  76.00  from holding Growth Allocation Fund or generate 5.72% return on investment over 90 days.

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

Moderate Strategy Fund  vs.  Growth Allocation Fund

Moderate Strategy

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Moderate Strategy Fund are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. 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.

Growth Allocation

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Growth Allocation Fund are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Growth Allocation is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Moderate Strategy and Growth Allocation

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

The idea behind Moderate Strategy Fund and Growth Allocation 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.