Correlation Between Financial Services and Utilities Portfolio
Can any of the company-specific risk be diversified away by investing in both Financial Services and Utilities 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 Utilities 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 Utilities Portfolio Utilities, you can compare the effects of market volatilities on Financial Services and Utilities 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 Utilities Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial Services and Utilities Portfolio.
Diversification Opportunities for Financial Services and Utilities Portfolio
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Financial and Utilities is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Financial Services Portfolio and Utilities Portfolio Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Utilities 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 Utilities Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Utilities Portfolio has no effect on the direction of Financial Services i.e., Financial Services and Utilities Portfolio go up and down completely randomly.
Pair Corralation between Financial Services and Utilities Portfolio
Assuming the 90 days horizon Financial Services Portfolio is expected to generate 0.69 times more return on investment than Utilities Portfolio. However, Financial Services Portfolio is 1.45 times less risky than Utilities Portfolio. It trades about 0.32 of its potential returns per unit of risk. Utilities Portfolio Utilities is currently generating about 0.02 per unit of risk. If you would invest 1,500 in Financial Services Portfolio on November 5, 2024 and sell it today you would earn a total of 96.00 from holding Financial Services Portfolio or generate 6.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Financial Services Portfolio vs. Utilities Portfolio Utilities
Performance |
| Timeline |
| Financial Services |
| Utilities Portfolio |
Financial Services and Utilities Portfolio Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financial Services and Utilities Portfolio
The main advantage of trading using opposite Financial Services and Utilities Portfolio positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Services position performs unexpectedly, Utilities 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 Utilities Portfolio will offset losses from the drop in Utilities Portfolio's long position.The idea behind Financial Services Portfolio and Utilities Portfolio Utilities 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.
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
Other Complementary Tools
| Portfolio Dashboard Portfolio dashboard that provides centralized access to all your investments | |
| Alpha Finder Use alpha and beta coefficients to find investment opportunities after accounting for the risk | |
| Commodity Directory Find actively traded commodities issued by global exchanges | |
| Stock Screener Find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook. | |
| Headlines Timeline Stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity |