Correlation Between World Energy and Financials Ultrasector
Can any of the company-specific risk be diversified away by investing in both World Energy and Financials Ultrasector 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 World Energy and Financials Ultrasector into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between World Energy Fund and Financials Ultrasector Profund, you can compare the effects of market volatilities on World Energy and Financials Ultrasector 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 World Energy with a short position of Financials Ultrasector. Check out your portfolio center. Please also check ongoing floating volatility patterns of World Energy and Financials Ultrasector.
Diversification Opportunities for World Energy and Financials Ultrasector
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between World and Financials is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding World Energy Fund and Financials Ultrasector Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financials Ultrasector and World Energy 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 World Energy Fund are associated (or correlated) with Financials Ultrasector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financials Ultrasector has no effect on the direction of World Energy i.e., World Energy and Financials Ultrasector go up and down completely randomly.
Pair Corralation between World Energy and Financials Ultrasector
Assuming the 90 days horizon World Energy is expected to generate 2.19 times less return on investment than Financials Ultrasector. In addition to that, World Energy is 1.42 times more volatile than Financials Ultrasector Profund. It trades about 0.1 of its total potential returns per unit of risk. Financials Ultrasector Profund is currently generating about 0.32 per unit of volatility. If you would invest 4,135 in Financials Ultrasector Profund on November 3, 2024 and sell it today you would earn a total of 412.00 from holding Financials Ultrasector Profund or generate 9.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
World Energy Fund vs. Financials Ultrasector Profund
Performance |
| Timeline |
| World Energy |
| Financials Ultrasector |
World Energy and Financials Ultrasector Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with World Energy and Financials Ultrasector
The main advantage of trading using opposite World Energy and Financials Ultrasector positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if World Energy position performs unexpectedly, Financials Ultrasector 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 Financials Ultrasector will offset losses from the drop in Financials Ultrasector's long position.| World Energy vs. Invesco Gold Special | World Energy vs. World Precious Minerals | World Energy vs. Sprott Gold Equity | World Energy vs. Oppenheimer Gold Special |
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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