Correlation Between Aggressive Growth and Science Technology

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

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

Diversification Opportunities for Aggressive Growth and Science Technology

0.99

Correlation Coefficient

Aggressive Growth  Science Technology

No risk reduction

The 3 months correlation between Aggressive and Science is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Aggressive Growth Fund and Science Technology Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Science Technology and Aggressive 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 Aggressive Growth Fund are associated (or correlated) with Science Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Science Technology has no effect on the direction of Aggressive Growth i.e., Aggressive Growth and Science Technology go up and down completely randomly.

Pair Corralation between Aggressive Growth and Science Technology

Assuming the 90 days horizon Aggressive Growth is expected to generate 1.19 times less return on investment than Science Technology. But when comparing it to its historical volatility, Aggressive Growth Fund is 1.19 times less risky than Science Technology. It trades about 0.18 of its potential returns per unit of risk. Science Technology Fund is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  2,757  in Science Technology Fund on September 14, 2024 and sell it today you would earn a total of  403.00  from holding Science Technology Fund or generate 14.62% return on investment over 90 days.

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

Aggressive Growth Fund  vs.  Science Technology Fund

Aggressive Growth

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aggressive Growth Fund are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Aggressive Growth may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Science Technology

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Science Technology Fund are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Science Technology showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aggressive Growth and Science Technology

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

The idea behind Aggressive Growth Fund and Science Technology 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.