Correlation Between Long Term and Fundamental Indexplus

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

By analyzing existing cross correlation between Long Term Government Fund and Fundamental Indexplus Tr, you can compare the effects of market volatilities on Long Term and Fundamental Indexplus 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 Long Term with a short position of Fundamental Indexplus. Check out your portfolio center. Please also check ongoing floating volatility patterns of Long Term and Fundamental Indexplus.

Diversification Opportunities for Long Term and Fundamental Indexplus

-0.32

Correlation Coefficient

Long Term  Fundamental Indexplus

Very good diversification

The 3 months correlation between Long and Fundamental is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Long Term Government Fund and Fundamental Indexplus Tr in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fundamental Indexplus and Long Term 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 Long Term Government Fund are associated (or correlated) with Fundamental Indexplus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fundamental Indexplus has no effect on the direction of Long Term i.e., Long Term and Fundamental Indexplus go up and down completely randomly.

Pair Corralation between Long Term and Fundamental Indexplus

Assuming the 90 days horizon Long Term is expected to generate 4.88 times less return on investment than Fundamental Indexplus. But when comparing it to its historical volatility, Long Term Government Fund is 1.09 times less risky than Fundamental Indexplus. It trades about 0.03 of its potential returns per unit of risk. Fundamental Indexplus Tr is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,114  in Fundamental Indexplus Tr on September 14, 2024 and sell it today you would earn a total of  355.00  from holding Fundamental Indexplus Tr or generate 31.87% return on investment over 90 days.

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

Long Term Government Fund  vs.  Fundamental Indexplus Tr

Long Term Government

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Long Term Government Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Fundamental Indexplus

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fundamental Indexplus Tr are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Fundamental Indexplus is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Long Term and Fundamental Indexplus

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

The idea behind Long Term Government Fund and Fundamental Indexplus Tr 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.

Check out your portfolio center.

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.