Correlation Between Information Technology and Feng Tay
Can any of the company-specific risk be diversified away by investing in both Information Technology and Feng Tay 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 Information Technology and Feng Tay into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Information Technology Total and Feng Tay Enterprises, you can compare the effects of market volatilities on Information Technology and Feng Tay 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 Information Technology with a short position of Feng Tay. Check out your portfolio center. Please also check ongoing floating volatility patterns of Information Technology and Feng Tay.
Diversification Opportunities for Information Technology and Feng Tay
-0.23 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Information and Feng is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Information Technology Total and Feng Tay Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Feng Tay Enterprises and Information Technology 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 Information Technology Total are associated (or correlated) with Feng Tay. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Feng Tay Enterprises has no effect on the direction of Information Technology i.e., Information Technology and Feng Tay go up and down completely randomly.
Pair Corralation between Information Technology and Feng Tay
Assuming the 90 days trading horizon Information Technology Total is expected to under-perform the Feng Tay. In addition to that, Information Technology is 1.41 times more volatile than Feng Tay Enterprises. It trades about -0.23 of its total potential returns per unit of risk. Feng Tay Enterprises is currently generating about -0.27 per unit of volatility. If you would invest 14,150 in Feng Tay Enterprises on September 1, 2024 and sell it today you would lose (1,050) from holding Feng Tay Enterprises or give up 7.42% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Information Technology Total vs. Feng Tay Enterprises
Performance |
| Timeline |
| Information Technology |
| Feng Tay Enterprises |
Information Technology and Feng Tay Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Information Technology and Feng Tay
The main advantage of trading using opposite Information Technology and Feng Tay positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Information Technology position performs unexpectedly, Feng Tay 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 Feng Tay will offset losses from the drop in Feng Tay's long position.The idea behind Information Technology Total and Feng Tay Enterprises 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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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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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