Correlation Between Select Fund and Income Growth

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

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

Diversification Opportunities for Select Fund and Income Growth

0.91

Correlation Coefficient

Select Fund  Income Growth

Almost no diversification

The 3 months correlation between Select and Income is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Select Fund Investor and Income Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Income Growth and Select 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 Select Fund Investor are associated (or correlated) with Income Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Income Growth has no effect on the direction of Select Fund i.e., Select Fund and Income Growth go up and down completely randomly.

Pair Corralation between Select Fund and Income Growth

Assuming the 90 days horizon Select Fund Investor is expected to generate 1.4 times more return on investment than Income Growth. However, Select Fund is 1.4 times more volatile than Income Growth Fund. It trades about 0.14 of its potential returns per unit of risk. Income Growth Fund is currently generating about 0.16 per unit of risk. If you would invest  11,501  in Select Fund Investor on August 31, 2024 and sell it today you would earn a total of  1,010  from holding Select Fund Investor or generate 8.78% return on investment over 90 days.

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

Select Fund Investor  vs.  Income Growth Fund

Select Fund Investor

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Select Fund Investor are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Select Fund may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Income Growth

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Income Growth Fund are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Income Growth may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Select Fund and Income Growth

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

The idea behind Select Fund Investor and Income Growth 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.