Correlation Between Materials Portfolio and Icon Natural
Can any of the company-specific risk be diversified away by investing in both Materials Portfolio and Icon Natural 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 Icon Natural 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 Icon Natural Resources, you can compare the effects of market volatilities on Materials Portfolio and Icon Natural 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 Icon Natural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Materials Portfolio and Icon Natural.
Diversification Opportunities for Materials Portfolio and Icon Natural
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Materials and Icon is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Materials Portfolio Fidelity and Icon Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Icon Natural Resources 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 Icon Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Icon Natural Resources has no effect on the direction of Materials Portfolio i.e., Materials Portfolio and Icon Natural go up and down completely randomly.
Pair Corralation between Materials Portfolio and Icon Natural
Assuming the 90 days horizon Materials Portfolio is expected to generate 6.25 times less return on investment than Icon Natural. But when comparing it to its historical volatility, Materials Portfolio Fidelity is 1.54 times less risky than Icon Natural. It trades about 0.07 of its potential returns per unit of risk. Icon Natural Resources is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest 1,814 in Icon Natural Resources on August 31, 2024 and sell it today you would earn a total of 165.00 from holding Icon Natural Resources or generate 9.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Materials Portfolio Fidelity vs. Icon Natural Resources
Performance |
| Timeline |
| Materials Portfolio |
| Icon Natural Resources |
Materials Portfolio and Icon Natural Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Materials Portfolio and Icon Natural
The main advantage of trading using opposite Materials Portfolio and Icon Natural positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Materials Portfolio position performs unexpectedly, Icon Natural 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 Icon Natural will offset losses from the drop in Icon Natural's long position.The idea behind Materials Portfolio Fidelity and Icon Natural Resources 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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