Correlation Between Growth Fund and Sector Rotation

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

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

Diversification Opportunities for Growth Fund and Sector Rotation

0.85

Correlation Coefficient

Growth Fund  Sector Rotation

Very poor diversification

The 3 months correlation between Growth and Sector is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Growth Fund Of and The Sector Rotation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sector Rotation and Growth 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 Growth Fund Of are associated (or correlated) with Sector Rotation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sector Rotation has no effect on the direction of Growth Fund i.e., Growth Fund and Sector Rotation go up and down completely randomly.

Pair Corralation between Growth Fund and Sector Rotation

Assuming the 90 days horizon Growth Fund Of is expected to generate 1.21 times more return on investment than Sector Rotation. However, Growth Fund is 1.21 times more volatile than The Sector Rotation. It trades about 0.05 of its potential returns per unit of risk. The Sector Rotation is currently generating about 0.02 per unit of risk. If you would invest  6,494  in Growth Fund Of on February 2, 2024 and sell it today you would earn a total of  161.00  from holding Growth Fund Of or generate 2.48% return on investment over 90 days.

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

Growth Fund Of  vs.  The Sector Rotation

Growth Fund

Risk-Adjusted Performance

3 of 100

Insignificant

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

Sector Rotation

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Sector Rotation are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Sector Rotation 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 Fund and Sector Rotation

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

The idea behind Growth Fund Of and The Sector Rotation 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.