Correlation Between Basic Materials and Oil Gas
Can any of the company-specific risk be diversified away by investing in both Basic Materials and Oil Gas 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 Basic Materials and Oil Gas into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Basic Materials Ultrasector and Oil Gas Ultrasector, you can compare the effects of market volatilities on Basic Materials and Oil Gas 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 Basic Materials with a short position of Oil Gas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and Oil Gas.
Diversification Opportunities for Basic Materials and Oil Gas
0.08 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Basic and Oil is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials Ultrasector and Oil Gas Ultrasector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oil Gas Ultrasector and Basic Materials 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 Basic Materials Ultrasector are associated (or correlated) with Oil Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oil Gas Ultrasector has no effect on the direction of Basic Materials i.e., Basic Materials and Oil Gas go up and down completely randomly.
Pair Corralation between Basic Materials and Oil Gas
Assuming the 90 days horizon Basic Materials Ultrasector is expected to generate 0.75 times more return on investment than Oil Gas. However, Basic Materials Ultrasector is 1.34 times less risky than Oil Gas. It trades about 0.03 of its potential returns per unit of risk. Oil Gas Ultrasector is currently generating about 0.02 per unit of risk. If you would invest 10,030 in Basic Materials Ultrasector on August 26, 2024 and sell it today you would earn a total of 1,996 from holding Basic Materials Ultrasector or generate 19.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Basic Materials Ultrasector vs. Oil Gas Ultrasector
Performance |
| Timeline |
| Basic Materials Ultr |
| Oil Gas Ultrasector |
Basic Materials and Oil Gas Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Basic Materials and Oil Gas
The main advantage of trading using opposite Basic Materials and Oil Gas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials position performs unexpectedly, Oil Gas 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 Oil Gas will offset losses from the drop in Oil Gas' long position.| Basic Materials vs. Aqr Diversified Arbitrage | Basic Materials vs. Pimco Diversified Income | Basic Materials vs. Oaktree Diversifiedome | Basic Materials vs. Delaware Limited Term Diversified |
| Oil Gas vs. Precious Metals Ultrasector | Oil Gas vs. Real Estate Ultrasector | Oil Gas vs. Basic Materials Ultrasector | Oil Gas vs. Utilities Ultrasector Profund |
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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
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