Correlation Between Growth Fund and Bond Fund

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

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

Diversification Opportunities for Growth Fund and Bond Fund

0.65

Correlation Coefficient

Growth Fund  Bond Fund

Poor diversification

The 3 months correlation between Growth and Bond is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Growth Fund Growth and Bond Fund Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bond Fund Bond 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 Growth are associated (or correlated) with Bond Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bond Fund Bond has no effect on the direction of Growth Fund i.e., Growth Fund and Bond Fund go up and down completely randomly.

Pair Corralation between Growth Fund and Bond Fund

Assuming the 90 days horizon Growth Fund Growth is expected to generate 3.35 times more return on investment than Bond Fund. However, Growth Fund is 3.35 times more volatile than Bond Fund Bond. It trades about 0.39 of its potential returns per unit of risk. Bond Fund Bond is currently generating about 0.23 per unit of risk. If you would invest  3,580  in Growth Fund Growth on February 21, 2024 and sell it today you would earn a total of  251.00  from holding Growth Fund Growth or generate 7.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Growth Fund Growth  vs.  Bond Fund Bond

Growth Fund Growth

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Growth Fund Growth are ranked lower than 7 (%) 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 latest stock price disturbance, may contribute to short-term losses for the investors.

Bond Fund Bond

Risk-Adjusted Performance

1 of 100

Weak

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

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

The idea behind Growth Fund Growth and Bond Fund Bond 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.