Correlation Between Banking Portfolio and Financial Services
Can any of the company-specific risk be diversified away by investing in both Banking Portfolio and Financial Services 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 Banking Portfolio and Financial Services into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Banking Portfolio Banking and Financial Services Portfolio, you can compare the effects of market volatilities on Banking Portfolio and Financial Services 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 Banking Portfolio with a short position of Financial Services. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banking Portfolio and Financial Services.
Diversification Opportunities for Banking Portfolio and Financial Services
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Banking and Financial is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Banking Portfolio Banking and Financial Services Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Services and Banking 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 Banking Portfolio Banking are associated (or correlated) with Financial Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Services has no effect on the direction of Banking Portfolio i.e., Banking Portfolio and Financial Services go up and down completely randomly.
Pair Corralation between Banking Portfolio and Financial Services
Assuming the 90 days horizon Banking Portfolio is expected to generate 1.15 times less return on investment than Financial Services. In addition to that, Banking Portfolio is 1.26 times more volatile than Financial Services Portfolio. It trades about 0.22 of its total potential returns per unit of risk. Financial Services Portfolio is currently generating about 0.32 per unit of volatility. 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 | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Banking Portfolio Banking vs. Financial Services Portfolio
Performance |
| Timeline |
| Banking Portfolio Banking |
| Financial Services |
Banking Portfolio and Financial Services Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Banking Portfolio and Financial Services
The main advantage of trading using opposite Banking Portfolio and Financial Services positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Banking Portfolio position performs unexpectedly, Financial Services 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 Financial Services will offset losses from the drop in Financial Services' long position.| Banking Portfolio vs. Consumer Finance Portfolio | Banking Portfolio vs. Financial Services Portfolio | Banking Portfolio vs. Insurance Portfolio Insurance | Banking Portfolio vs. Brokerage And 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 Stocks Directory module to find actively traded stocks across global markets.
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