Correlation Between Spectrum Growth and Spectrum Income

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

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

Diversification Opportunities for Spectrum Growth and Spectrum Income

-0.43

Correlation Coefficient

Spectrum Growth  Spectrum Income

Very good diversification

The 3 months correlation between Spectrum and Spectrum is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Spectrum Growth Fund and Spectrum Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spectrum Income and Spectrum 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 Spectrum Growth Fund are associated (or correlated) with Spectrum Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spectrum Income has no effect on the direction of Spectrum Growth i.e., Spectrum Growth and Spectrum Income go up and down completely randomly.

Pair Corralation between Spectrum Growth and Spectrum Income

Assuming the 90 days horizon Spectrum Growth Fund is expected to generate 3.23 times more return on investment than Spectrum Income. However, Spectrum Growth is 3.23 times more volatile than Spectrum Income Fund. It trades about 0.17 of its potential returns per unit of risk. Spectrum Income Fund is currently generating about -0.01 per unit of risk. If you would invest  2,640  in Spectrum Growth Fund on August 31, 2024 and sell it today you would earn a total of  184.00  from holding Spectrum Growth Fund or generate 6.97% return on investment over 90 days.

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

Spectrum Growth Fund  vs.  Spectrum Income Fund

Spectrum Growth

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Spectrum Growth Fund are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly inconsistent technical and fundamental indicators, Spectrum Growth may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Spectrum Income

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Spectrum Growth and Spectrum Income

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

The idea behind Spectrum Growth Fund and Spectrum Income 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.