Correlation Between Materials Portfolio and Global Hard
Can any of the company-specific risk be diversified away by investing in both Materials Portfolio and Global Hard 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 Materials Portfolio and Global Hard into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Materials Portfolio Fidelity and Global Hard Assets, you can compare the effects of market volatilities on Materials Portfolio and Global Hard 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 Materials Portfolio with a short position of Global Hard. Check out your portfolio center. Please also check ongoing floating volatility patterns of Materials Portfolio and Global Hard.
Diversification Opportunities for Materials Portfolio and Global Hard
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Materials and Global is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Materials Portfolio Fidelity and Global Hard Assets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Hard Assets and Materials Portfolio 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 Materials Portfolio Fidelity are associated (or correlated) with Global Hard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Hard Assets has no effect on the direction of Materials Portfolio i.e., Materials Portfolio and Global Hard go up and down completely randomly.
Pair Corralation between Materials Portfolio and Global Hard
Assuming the 90 days horizon Materials Portfolio Fidelity is expected to generate 1.09 times more return on investment than Global Hard. However, Materials Portfolio is 1.09 times more volatile than Global Hard Assets. It trades about 0.16 of its potential returns per unit of risk. Global Hard Assets is currently generating about 0.12 per unit of risk. If you would invest 9,834 in Materials Portfolio Fidelity on September 1, 2024 and sell it today you would earn a total of 289.00 from holding Materials Portfolio Fidelity or generate 2.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Materials Portfolio Fidelity vs. Global Hard Assets
Performance |
| Timeline |
| Materials Portfolio |
| Global Hard Assets |
Materials Portfolio and Global Hard Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Materials Portfolio and Global Hard
The main advantage of trading using opposite Materials Portfolio and Global Hard positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Materials Portfolio position performs unexpectedly, Global Hard 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 Global Hard will offset losses from the drop in Global Hard's long position.The idea behind Materials Portfolio Fidelity and Global Hard Assets 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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