Correlation Between New Economy and Aggressive Investors

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

By analyzing existing cross correlation between New Economy Fund and Aggressive Investors 1, you can compare the effects of market volatilities on New Economy and Aggressive Investors 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 New Economy with a short position of Aggressive Investors. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Economy and Aggressive Investors.

Diversification Opportunities for New Economy and Aggressive Investors

0.83

Correlation Coefficient

New Economy  Aggressive Investors

Very poor diversification

The 3 months correlation between New and Aggressive is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding New Economy Fund and Aggressive Investors 1 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aggressive Investors and New Economy 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 New Economy Fund are associated (or correlated) with Aggressive Investors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aggressive Investors has no effect on the direction of New Economy i.e., New Economy and Aggressive Investors go up and down completely randomly.

Pair Corralation between New Economy and Aggressive Investors

Assuming the 90 days horizon New Economy Fund is expected to generate 0.76 times more return on investment than Aggressive Investors. However, New Economy Fund is 1.32 times less risky than Aggressive Investors. It trades about 0.4 of its potential returns per unit of risk. Aggressive Investors 1 is currently generating about -0.07 per unit of risk. If you would invest  6,507  in New Economy Fund on September 17, 2024 and sell it today you would earn a total of  344.00  from holding New Economy Fund or generate 5.29% return on investment over 90 days.

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

New Economy Fund  vs.  Aggressive Investors 1

New Economy Fund

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in New Economy Fund are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, New Economy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Aggressive Investors

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aggressive Investors 1 are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Aggressive Investors may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with New Economy and Aggressive Investors

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

The idea behind New Economy Fund and Aggressive Investors 1 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.