Correlation Between Value Fund and Equity Growth

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

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

Diversification Opportunities for Value Fund and Equity Growth

0.83

Correlation Coefficient

Value Fund  Equity Growth

Very poor diversification

The 3 months correlation between Value and Equity is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Value Fund Investor and Equity Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Growth 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 Investor are associated (or correlated) with Equity Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Growth has no effect on the direction of Value Fund i.e., Value Fund and Equity Growth go up and down completely randomly.

Pair Corralation between Value Fund and Equity Growth

Assuming the 90 days horizon Value Fund Investor is expected to generate 0.73 times more return on investment than Equity Growth. However, Value Fund Investor is 1.37 times less risky than Equity Growth. It trades about -0.05 of its potential returns per unit of risk. Equity Growth Fund is currently generating about -0.11 per unit of risk. If you would invest  795.00  in Value Fund Investor on January 24, 2025 and sell it today you would lose (43.00) from holding Value Fund Investor or give up 5.41% of portfolio value over 90 days.

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

Value Fund Investor  vs.  Equity Growth Fund

Value Fund Investor

Risk-Adjusted Performance

Very Weak

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

Equity Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Equity Growth Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in May 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Value Fund and Equity Growth

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

The idea behind Value Fund Investor and Equity Growth 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.

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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..