Correlation Between Value Fund and Select Fund

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

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

Diversification Opportunities for Value Fund and Select Fund

0.95

Correlation Coefficient

Value Fund  Select Fund

Almost no diversification

The 3 months correlation between Value and Select is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Value Fund A and Select Fund Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select Fund Investor 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 A are associated (or correlated) with Select Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select Fund Investor has no effect on the direction of Value Fund i.e., Value Fund and Select Fund go up and down completely randomly.

Pair Corralation between Value Fund and Select Fund

Assuming the 90 days horizon Value Fund is expected to generate 1.88 times less return on investment than Select Fund. But when comparing it to its historical volatility, Value Fund A is 1.26 times less risky than Select Fund. It trades about 0.19 of its potential returns per unit of risk. Select Fund Investor is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  10,932  in Select Fund Investor on April 25, 2025 and sell it today you would earn a total of  1,930  from holding Select Fund Investor or generate 17.65% 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 A  vs.  Select Fund Investor

Value Fund A

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Value Fund A are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Value Fund may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Select Fund Investor

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Select Fund Investor are ranked lower than 22 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Select Fund showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Value Fund and Select Fund

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

The idea behind Value Fund A and Select Fund Investor 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.