Correlation Between Consumer Services and Fam Small
Can any of the company-specific risk be diversified away by investing in both Consumer Services and Fam Small 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 Consumer Services and Fam Small into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Consumer Services Ultrasector and Fam Small Cap, you can compare the effects of market volatilities on Consumer Services and Fam Small 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 Consumer Services with a short position of Fam Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consumer Services and Fam Small.
Diversification Opportunities for Consumer Services and Fam Small
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Consumer and Fam is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Services Ultrasector and Fam Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fam Small Cap and Consumer Services 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 Consumer Services Ultrasector are associated (or correlated) with Fam Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fam Small Cap has no effect on the direction of Consumer Services i.e., Consumer Services and Fam Small go up and down completely randomly.
Pair Corralation between Consumer Services and Fam Small
Assuming the 90 days horizon Consumer Services Ultrasector is expected to generate 1.5 times more return on investment than Fam Small. However, Consumer Services is 1.5 times more volatile than Fam Small Cap. It trades about 0.09 of its potential returns per unit of risk. Fam Small Cap is currently generating about 0.09 per unit of risk. If you would invest 3,839 in Consumer Services Ultrasector on August 29, 2024 and sell it today you would earn a total of 1,984 from holding Consumer Services Ultrasector or generate 51.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Consumer Services Ultrasector vs. Fam Small Cap
Performance |
| Timeline |
| Consumer Services |
| Fam Small Cap |
Consumer Services and Fam Small Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Consumer Services and Fam Small
The main advantage of trading using opposite Consumer Services and Fam Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Consumer Services position performs unexpectedly, Fam Small 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 Fam Small will offset losses from the drop in Fam Small's long position.The idea behind Consumer Services Ultrasector and Fam Small Cap 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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