Correlation Between Income Growth and Heritage Fund

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

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

Diversification Opportunities for Income Growth and Heritage Fund

0.94

Correlation Coefficient

Income Growth  Heritage Fund

Almost no diversification

The 3 months correlation between Income and Heritage is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Income Growth Fund and Heritage Fund A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heritage Fund A and Income Growth 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 Income Growth Fund are associated (or correlated) with Heritage Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heritage Fund A has no effect on the direction of Income Growth i.e., Income Growth and Heritage Fund go up and down completely randomly.

Pair Corralation between Income Growth and Heritage Fund

Assuming the 90 days horizon Income Growth is expected to generate 3.23 times less return on investment than Heritage Fund. But when comparing it to its historical volatility, Income Growth Fund is 1.48 times less risky than Heritage Fund. It trades about 0.12 of its potential returns per unit of risk. Heritage Fund A is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  2,095  in Heritage Fund A on September 13, 2024 and sell it today you would earn a total of  363.00  from holding Heritage Fund A or generate 17.33% return on investment over 90 days.

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

Income Growth Fund  vs.  Heritage Fund A

Income Growth

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Income Growth Fund are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Income Growth is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Heritage Fund A

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Heritage Fund A are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Heritage Fund showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Income Growth and Heritage Fund

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

The idea behind Income Growth Fund and Heritage Fund A 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.