Correlation Between Growth Income and Snow Capital

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

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

Diversification Opportunities for Growth Income and Snow Capital

0.62

Correlation Coefficient

Growth Income  Snow Capital

Poor diversification

The 3 months correlation between Growth and Snow is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Growth Income Fund and Snow Capital Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Snow Capital Small and Growth Income 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 Growth Income Fund are associated (or correlated) with Snow Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Snow Capital Small has no effect on the direction of Growth Income i.e., Growth Income and Snow Capital go up and down completely randomly.

Pair Corralation between Growth Income and Snow Capital

Assuming the 90 days horizon Growth Income Fund is expected to under-perform the Snow Capital. In addition to that, Growth Income is 1.41 times more volatile than Snow Capital Small. It trades about -0.11 of its total potential returns per unit of risk. Snow Capital Small is currently generating about -0.01 per unit of volatility. If you would invest  6,007  in Snow Capital Small on September 20, 2024 and sell it today you would lose (126.00) from holding Snow Capital Small or give up 2.1% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Growth Income Fund  vs.  Snow Capital Small

Growth Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Growth Income Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Snow Capital Small

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Growth Income and Snow Capital

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

The idea behind Growth Income Fund and Snow Capital Small 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.