Correlation Between Transportation Portfolio and Consumer Finance
Can any of the company-specific risk be diversified away by investing in both Transportation Portfolio and Consumer Finance 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 Transportation Portfolio and Consumer Finance into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Transportation Portfolio Transportation and Consumer Finance Portfolio, you can compare the effects of market volatilities on Transportation Portfolio and Consumer Finance 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 Transportation Portfolio with a short position of Consumer Finance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transportation Portfolio and Consumer Finance.
Diversification Opportunities for Transportation Portfolio and Consumer Finance
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Transportation and Consumer is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Transportation Portfolio Trans and Consumer Finance Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumer Finance Por and Transportation 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 Transportation Portfolio Transportation are associated (or correlated) with Consumer Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumer Finance Por has no effect on the direction of Transportation Portfolio i.e., Transportation Portfolio and Consumer Finance go up and down completely randomly.
Pair Corralation between Transportation Portfolio and Consumer Finance
Assuming the 90 days horizon Transportation Portfolio is expected to generate 1.63 times less return on investment than Consumer Finance. But when comparing it to its historical volatility, Transportation Portfolio Transportation is 1.05 times less risky than Consumer Finance. It trades about 0.25 of its potential returns per unit of risk. Consumer Finance Portfolio is currently generating about 0.38 of returns per unit of risk over similar time horizon. If you would invest 1,797 in Consumer Finance Portfolio on September 1, 2024 and sell it today you would earn a total of 213.00 from holding Consumer Finance Portfolio or generate 11.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Transportation Portfolio Trans vs. Consumer Finance Portfolio
Performance |
| Timeline |
| Transportation Portfolio |
| Consumer Finance Por |
Transportation Portfolio and Consumer Finance Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Transportation Portfolio and Consumer Finance
The main advantage of trading using opposite Transportation Portfolio and Consumer Finance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Transportation Portfolio position performs unexpectedly, Consumer Finance 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 Consumer Finance will offset losses from the drop in Consumer Finance's long position.The idea behind Transportation Portfolio Transportation and Consumer Finance Portfolio 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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