Correlation Between Intermediate-term and Equity Growth

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

By analyzing existing cross correlation between Intermediate Term Tax Free Bond and Equity Growth Fund, you can compare the effects of market volatilities on Intermediate-term and Equity 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 Intermediate-term with a short position of Equity Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Intermediate-term and Equity Growth.

Diversification Opportunities for Intermediate-term and Equity Growth

-0.33

Correlation Coefficient

Intermediate-term  Equity Growth

Very good diversification

The 3 months correlation between Intermediate-term and Equity is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Intermediate Term Tax Free Bon and Equity Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Growth and Intermediate-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 Intermediate Term Tax Free Bond are associated (or correlated) with Equity Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Growth has no effect on the direction of Intermediate-term i.e., Intermediate-term and Equity Growth go up and down completely randomly.

Pair Corralation between Intermediate-term and Equity Growth

Assuming the 90 days horizon Intermediate-term is expected to generate 17.58 times less return on investment than Equity Growth. But when comparing it to its historical volatility, Intermediate Term Tax Free Bond is 3.61 times less risky than Equity Growth. It trades about 0.05 of its potential returns per unit of risk. Equity Growth Fund is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  3,131  in Equity Growth Fund on September 3, 2024 and sell it today you would earn a total of  324.00  from holding Equity Growth Fund or generate 10.35% return on investment over 90 days.

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

Intermediate Term Tax Free Bon  vs.  Equity Growth Fund

Intermediate Term Tax

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Intermediate Term Tax Free Bond are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Intermediate-term is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Equity Growth

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Equity Growth Fund are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Equity Growth may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Intermediate-term and Equity Growth

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

The idea behind Intermediate Term Tax Free Bond and Equity 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.

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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.