Correlation Between Equity Growth and Heritage Fund

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

Diversification Opportunities for Equity Growth and Heritage Fund

0.85

Correlation Coefficient

Equity Growth  Heritage Fund

Very poor diversification

The 3 months correlation between Equity and Heritage is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Equity Growth Fund and Heritage Fund Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heritage Fund Investor and Equity 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 Equity 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 Investor has no effect on the direction of Equity Growth i.e., Equity Growth and Heritage Fund go up and down completely randomly.

Pair Corralation between Equity Growth and Heritage Fund

Assuming the 90 days horizon Equity Growth Fund is expected to generate 0.37 times more return on investment than Heritage Fund. However, Equity Growth Fund is 2.71 times less risky than Heritage Fund. It trades about 0.08 of its potential returns per unit of risk. Heritage Fund Investor is currently generating about -0.04 per unit of risk. If you would invest  3,230  in Equity Growth Fund on September 22, 2024 and sell it today you would earn a total of  125.00  from holding Equity Growth Fund or generate 3.87% return on investment over 90 days.

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

Equity Growth Fund  vs.  Heritage Fund Investor

Equity Growth

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Equity Growth Fund are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Equity Growth is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Heritage Fund Investor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Heritage Fund Investor has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Heritage 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 Growth and Heritage Fund

The main advantage of trading using opposite Equity Growth and Heritage Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity 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 Equity Growth Fund and Heritage 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.