Correlation Between Financial Industries and Financial Services
Can any of the company-specific risk be diversified away by investing in both Financial Industries and Financial Services 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 Financial Industries and Financial Services into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Financial Industries Fund and Financial Services Portfolio, you can compare the effects of market volatilities on Financial Industries and Financial Services 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 Financial Industries with a short position of Financial Services. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial Industries and Financial Services.
Diversification Opportunities for Financial Industries and Financial Services
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Financial and Financial is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Financial Industries Fund and Financial Services Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Services and Financial Industries 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 Financial Industries Fund are associated (or correlated) with Financial Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Services has no effect on the direction of Financial Industries i.e., Financial Industries and Financial Services go up and down completely randomly.
Pair Corralation between Financial Industries and Financial Services
Assuming the 90 days horizon Financial Industries Fund is expected to generate 1.09 times more return on investment than Financial Services. However, Financial Industries is 1.09 times more volatile than Financial Services Portfolio. It trades about 0.04 of its potential returns per unit of risk. Financial Services Portfolio is currently generating about 0.04 per unit of risk. If you would invest 1,124 in Financial Industries Fund on January 18, 2025 and sell it today you would earn a total of 276.00 from holding Financial Industries Fund or generate 24.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Financial Industries Fund vs. Financial Services Portfolio
Performance |
| Timeline |
| Financial Industries |
| Financial Services |
Financial Industries and Financial Services Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financial Industries and Financial Services
The main advantage of trading using opposite Financial Industries and Financial Services positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Industries position performs unexpectedly, Financial Services 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 Financial Services will offset losses from the drop in Financial Services' long position.| Financial Industries vs. Jhancock Disciplined Value | Financial Industries vs. Wasatch Large Cap | Financial Industries vs. Neiman Large Cap | Financial Industries vs. Pnc Balanced Allocation |
| Financial Services vs. Calvert Smallmid Cap A | Financial Services vs. Artisan Small Cap | Financial Services vs. Cardinal Small Cap | Financial Services vs. United Kingdom Small |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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