Correlation Between Financials Ultrasector and Oil Gas
Can any of the company-specific risk be diversified away by investing in both Financials Ultrasector and Oil Gas 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 Financials Ultrasector and Oil Gas into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Financials Ultrasector Profund and Oil Gas Ultrasector, you can compare the effects of market volatilities on Financials Ultrasector and Oil Gas 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 Financials Ultrasector with a short position of Oil Gas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financials Ultrasector and Oil Gas.
Diversification Opportunities for Financials Ultrasector and Oil Gas
0.44 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Financials and Oil is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Financials Ultrasector Profund and Oil Gas Ultrasector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oil Gas Ultrasector and Financials Ultrasector 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 Financials Ultrasector Profund are associated (or correlated) with Oil Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oil Gas Ultrasector has no effect on the direction of Financials Ultrasector i.e., Financials Ultrasector and Oil Gas go up and down completely randomly.
Pair Corralation between Financials Ultrasector and Oil Gas
Assuming the 90 days horizon Financials Ultrasector Profund is expected to under-perform the Oil Gas. But the mutual fund apears to be less risky and, when comparing its historical volatility, Financials Ultrasector Profund is 1.95 times less risky than Oil Gas. The mutual fund trades about -0.08 of its potential returns per unit of risk. The Oil Gas Ultrasector is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest 4,191 in Oil Gas Ultrasector on November 29, 2024 and sell it today you would lose (46.00) from holding Oil Gas Ultrasector or give up 1.1% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Financials Ultrasector Profund vs. Oil Gas Ultrasector
Performance |
| Timeline |
| Financials Ultrasector |
| Oil Gas Ultrasector |
Financials Ultrasector and Oil Gas Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financials Ultrasector and Oil Gas
The main advantage of trading using opposite Financials Ultrasector and Oil Gas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financials Ultrasector position performs unexpectedly, Oil Gas 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 Oil Gas will offset losses from the drop in Oil Gas' long position.The idea behind Financials Ultrasector Profund and Oil Gas Ultrasector 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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