Correlation Between Equity Income and Value Fund

Can any of the company-specific risk be diversified away by investing in both Equity 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 Equity 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 Equity Income Fund and Value Fund R6, you can compare the effects of market volatilities on Equity 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 Equity Income with a short position of Value Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equity Income and Value Fund.

Diversification Opportunities for Equity Income and Value Fund

0.99

Correlation Coefficient

Equity Income  Value Fund

No risk reduction

The 3 months correlation between Equity and Value is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Equity Income Fund and Value Fund R6 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Value Fund R6 and Equity 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 Equity 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 R6 has no effect on the direction of Equity Income i.e., Equity Income and Value Fund go up and down completely randomly.

Pair Corralation between Equity Income and Value Fund

Assuming the 90 days horizon Equity Income is expected to generate 1.18 times less return on investment than Value Fund. But when comparing it to its historical volatility, Equity Income Fund is 1.26 times less risky than Value Fund. It trades about 0.15 of its potential returns per unit of risk. Value Fund R6 is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  794.00  in Value Fund R6 on May 17, 2025 and sell it today you would earn a total of  48.00  from holding Value Fund R6 or generate 6.05% return on investment over 90 days.

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

Equity Income Fund  vs.  Value Fund R6

Equity Income

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Equity Income Fund are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Equity Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Value Fund R6

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Value Fund R6 are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong 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 Equity Income and Value Fund

The main advantage of trading using opposite Equity Income and Value Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity 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 Equity Income Fund and Value Fund R6 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.