Correlation Between Spectrum Fund and Blue Chip

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

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

Diversification Opportunities for Spectrum Fund and Blue Chip

0.96

Correlation Coefficient

Spectrum Fund  Blue Chip

Almost no diversification

The 3 months correlation between Spectrum and Blue is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Spectrum Fund Adviser and Blue Chip Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Blue Chip Fund and Spectrum 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 Spectrum Fund Adviser are associated (or correlated) with Blue Chip. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Blue Chip Fund has no effect on the direction of Spectrum Fund i.e., Spectrum Fund and Blue Chip go up and down completely randomly.

Pair Corralation between Spectrum Fund and Blue Chip

Assuming the 90 days horizon Spectrum Fund Adviser is expected to under-perform the Blue Chip. In addition to that, Spectrum Fund is 1.0 times more volatile than Blue Chip Fund. It trades about -0.13 of its total potential returns per unit of risk. Blue Chip Fund is currently generating about -0.12 per unit of volatility. If you would invest  4,147  in Blue Chip Fund on January 26, 2024 and sell it today you would lose (95.00) from holding Blue Chip Fund or give up 2.29% of portfolio value over 90 days.

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

Spectrum Fund Adviser  vs.  Blue Chip Fund

Spectrum Fund Adviser

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Spectrum Fund Adviser are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Spectrum Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Blue Chip Fund

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Blue Chip Fund are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Blue Chip is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Spectrum Fund and Blue Chip

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

The idea behind Spectrum Fund Adviser and Blue Chip 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.

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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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.