Correlation Between Oil Gas and Large Capitalization
Can any of the company-specific risk be diversified away by investing in both Oil Gas and Large Capitalization 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 Oil Gas and Large Capitalization into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Oil Gas Ultrasector and Large Capitalization Growth, you can compare the effects of market volatilities on Oil Gas and Large Capitalization 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 Oil Gas with a short position of Large Capitalization. Check out your portfolio center. Please also check ongoing floating volatility patterns of Oil Gas and Large Capitalization.
Diversification Opportunities for Oil Gas and Large Capitalization
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Oil and Large is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Oil Gas Ultrasector and Large Capitalization Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Capitalization and Oil Gas 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 Oil Gas Ultrasector are associated (or correlated) with Large Capitalization. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Capitalization has no effect on the direction of Oil Gas i.e., Oil Gas and Large Capitalization go up and down completely randomly.
Pair Corralation between Oil Gas and Large Capitalization
Assuming the 90 days horizon Oil Gas Ultrasector is expected to generate 1.67 times more return on investment than Large Capitalization. However, Oil Gas is 1.67 times more volatile than Large Capitalization Growth. It trades about 0.29 of its potential returns per unit of risk. Large Capitalization Growth is currently generating about 0.4 per unit of risk. If you would invest 3,605 in Oil Gas Ultrasector on September 1, 2024 and sell it today you would earn a total of 383.00 from holding Oil Gas Ultrasector or generate 10.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Oil Gas Ultrasector vs. Large Capitalization Growth
Performance |
| Timeline |
| Oil Gas Ultrasector |
| Large Capitalization |
Oil Gas and Large Capitalization Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Oil Gas and Large Capitalization
The main advantage of trading using opposite Oil Gas and Large Capitalization positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Oil Gas position performs unexpectedly, Large Capitalization 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 Large Capitalization will offset losses from the drop in Large Capitalization's long position.| Oil Gas vs. Oil Gas Ultrasector | Oil Gas vs. Ultramid Cap Profund Ultramid Cap | Oil Gas vs. Precious Metals Ultrasector | Oil Gas vs. Real Estate Ultrasector |
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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