Correlation Between Select Fund and Growth Fund

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

By analyzing existing cross correlation between Select Fund Investor and Growth Fund R5, you can compare the effects of market volatilities on Select Fund and Growth 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 Select Fund with a short position of Growth Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Select Fund and Growth Fund.

Diversification Opportunities for Select Fund and Growth Fund

0.99

Correlation Coefficient

Select Fund  Growth Fund

No risk reduction

The 3 months correlation between Select and Growth is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Select Fund Investor and Growth Fund R5 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Growth Fund R5 and Select 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 Select Fund Investor are associated (or correlated) with Growth Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Growth Fund R5 has no effect on the direction of Select Fund i.e., Select Fund and Growth Fund go up and down completely randomly.

Pair Corralation between Select Fund and Growth Fund

Assuming the 90 days horizon Select Fund Investor is expected to generate 1.01 times more return on investment than Growth Fund. However, Select Fund is 1.01 times more volatile than Growth Fund R5. It trades about 0.01 of its potential returns per unit of risk. Growth Fund R5 is currently generating about 0.0 per unit of risk. If you would invest  10,732  in Select Fund Investor on February 5, 2024 and sell it today you would earn a total of  39.00  from holding Select Fund Investor or generate 0.36% return on investment over 90 days.

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

Select Fund Investor  vs.  Growth Fund R5

Select Fund Investor

Risk-Adjusted Performance

3 of 100

Insignificant

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

Growth Fund R5

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Growth Fund R5 are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Growth 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 Select Fund and Growth Fund

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

The idea behind Select Fund Investor and Growth Fund R5 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.