Correlation Between Information Technology and Giant Manufacturing
Can any of the company-specific risk be diversified away by investing in both Information Technology and Giant Manufacturing 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 Giant Manufacturing 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 Giant Manufacturing Co, you can compare the effects of market volatilities on Information Technology and Giant Manufacturing 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 Giant Manufacturing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Information Technology and Giant Manufacturing.
Diversification Opportunities for Information Technology and Giant Manufacturing
-0.52 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Information and Giant is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Information Technology Total and Giant Manufacturing Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Giant Manufacturing 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 Giant Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Giant Manufacturing has no effect on the direction of Information Technology i.e., Information Technology and Giant Manufacturing go up and down completely randomly.
Pair Corralation between Information Technology and Giant Manufacturing
Assuming the 90 days trading horizon Information Technology Total is expected to generate 1.51 times more return on investment than Giant Manufacturing. However, Information Technology is 1.51 times more volatile than Giant Manufacturing Co. It trades about -0.02 of its potential returns per unit of risk. Giant Manufacturing Co is currently generating about -0.38 per unit of risk. If you would invest 4,710 in Information Technology Total on August 28, 2024 and sell it today you would lose (110.00) from holding Information Technology Total or give up 2.34% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Information Technology Total vs. Giant Manufacturing Co
Performance |
| Timeline |
| Information Technology |
| Giant Manufacturing |
Information Technology and Giant Manufacturing Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Information Technology and Giant Manufacturing
The main advantage of trading using opposite Information Technology and Giant Manufacturing positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Information Technology position performs unexpectedly, Giant Manufacturing 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 Giant Manufacturing will offset losses from the drop in Giant Manufacturing's long position.The idea behind Information Technology Total and Giant Manufacturing Co 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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