Correlation Between Value Fund and Value Equity

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

By analyzing existing cross correlation between Value Fund R6 and Value Equity Institutional, you can compare the effects of market volatilities on Value Fund and Value Equity 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 Value Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Value Fund and Value Equity.

Diversification Opportunities for Value Fund and Value Equity

0.82

Correlation Coefficient

Value Fund  Value Equity

Very poor diversification

The 3 months correlation between Value and Value is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Value Fund R6 and Value Equity Institutional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Value Equity Institu 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 R6 are associated (or correlated) with Value Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Value Equity Institu has no effect on the direction of Value Fund i.e., Value Fund and Value Equity go up and down completely randomly.

Pair Corralation between Value Fund and Value Equity

Assuming the 90 days horizon Value Fund R6 is expected to generate 0.44 times more return on investment than Value Equity. However, Value Fund R6 is 2.3 times less risky than Value Equity. It trades about 0.12 of its potential returns per unit of risk. Value Equity Institutional is currently generating about -0.03 per unit of risk. If you would invest  838.00  in Value Fund R6 on September 12, 2024 and sell it today you would earn a total of  35.00  from holding Value Fund R6 or generate 4.18% return on investment over 90 days.

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

Value Fund R6  vs.  Value Equity Institutional

Value Fund R6

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Value Fund R6 are ranked lower than 9 (%) 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.

Value Equity Institu

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Value Fund and Value Equity

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

The idea behind Value Fund R6 and Value Equity Institutional 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.