Correlation Between Financial Services and Automotive Portfolio
Can any of the company-specific risk be diversified away by investing in both Financial Services and Automotive Portfolio 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 Services and Automotive Portfolio into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Financial Services Portfolio and Automotive Portfolio Automotive, you can compare the effects of market volatilities on Financial Services and Automotive Portfolio 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 Services with a short position of Automotive Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial Services and Automotive Portfolio.
Diversification Opportunities for Financial Services and Automotive Portfolio
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Financial and Automotive is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Financial Services Portfolio and Automotive Portfolio Automotiv in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Automotive Portfolio and Financial 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 Financial Services Portfolio are associated (or correlated) with Automotive Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Automotive Portfolio has no effect on the direction of Financial Services i.e., Financial Services and Automotive Portfolio go up and down completely randomly.
Pair Corralation between Financial Services and Automotive Portfolio
Assuming the 90 days horizon Financial Services Portfolio is expected to generate 0.93 times more return on investment than Automotive Portfolio. However, Financial Services Portfolio is 1.07 times less risky than Automotive Portfolio. It trades about 0.14 of its potential returns per unit of risk. Automotive Portfolio Automotive is currently generating about 0.06 per unit of risk. If you would invest 1,269 in Financial Services Portfolio on September 18, 2024 and sell it today you would earn a total of 343.00 from holding Financial Services Portfolio or generate 27.03% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Financial Services Portfolio vs. Automotive Portfolio Automotiv
Performance |
| Timeline |
| Financial Services |
| Automotive Portfolio |
Financial Services and Automotive Portfolio Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financial Services and Automotive Portfolio
The main advantage of trading using opposite Financial Services and Automotive Portfolio positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Services position performs unexpectedly, Automotive Portfolio 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 Automotive Portfolio will offset losses from the drop in Automotive Portfolio's long position.| Financial Services vs. Consumer Finance Portfolio | Financial Services vs. Automotive Portfolio Automotive |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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