Correlation Between Consumer Finance and Financial Services
Can any of the company-specific risk be diversified away by investing in both Consumer Finance 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 Consumer Finance and Financial Services into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Consumer Finance Portfolio and Financial Services Portfolio, you can compare the effects of market volatilities on Consumer Finance 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 Consumer Finance with a short position of Financial Services. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consumer Finance and Financial Services.
Diversification Opportunities for Consumer Finance and Financial Services
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Consumer and Financial is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Finance Portfolio and Financial Services Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Services and Consumer Finance 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 Consumer Finance Portfolio 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 Consumer Finance i.e., Consumer Finance and Financial Services go up and down completely randomly.
Pair Corralation between Consumer Finance and Financial Services
Assuming the 90 days horizon Consumer Finance is expected to generate 1.03 times less return on investment than Financial Services. But when comparing it to its historical volatility, Consumer Finance Portfolio is 1.05 times less risky than Financial Services. It trades about 0.18 of its potential returns per unit of risk. Financial Services Portfolio is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 1,289 in Financial Services Portfolio on September 1, 2024 and sell it today you would earn a total of 377.00 from holding Financial Services Portfolio or generate 29.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Consumer Finance Portfolio vs. Financial Services Portfolio
Performance |
| Timeline |
| Consumer Finance Por |
| Financial Services |
Consumer Finance and Financial Services Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Consumer Finance and Financial Services
The main advantage of trading using opposite Consumer Finance and Financial Services positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Consumer Finance 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.| Consumer Finance vs. Banking Portfolio Banking | Consumer Finance vs. Insurance Portfolio Insurance | Consumer Finance vs. Financial Services Portfolio | Consumer Finance vs. Automotive Portfolio Automotive |
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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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