Correlation Between Basic Materials and Duke Energy
Can any of the company-specific risk be diversified away by investing in both Basic Materials and Duke Energy 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 Basic Materials and Duke Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Basic Materials and Duke Energy, you can compare the effects of market volatilities on Basic Materials and Duke Energy 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 Basic Materials with a short position of Duke Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and Duke Energy.
Diversification Opportunities for Basic Materials and Duke Energy
0.23 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Basic and Duke is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials and Duke Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Duke Energy and Basic Materials 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 Basic Materials are associated (or correlated) with Duke Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Duke Energy has no effect on the direction of Basic Materials i.e., Basic Materials and Duke Energy go up and down completely randomly.
Pair Corralation between Basic Materials and Duke Energy
Assuming the 90 days trading horizon Basic Materials is expected to generate 3.44 times less return on investment than Duke Energy. But when comparing it to its historical volatility, Basic Materials is 2.68 times less risky than Duke Energy. It trades about 0.12 of its potential returns per unit of risk. Duke Energy is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 65,949 in Duke Energy on September 2, 2024 and sell it today you would earn a total of 4,700 from holding Duke Energy or generate 7.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 85.71% |
| Values | Daily Returns |
Basic Materials vs. Duke Energy
Performance |
| Timeline |
Basic Materials and Duke Energy Volatility Contrast
Predicted Return Density |
| Returns |
Basic Materials
Pair trading matchups for Basic Materials
Duke Energy
Pair trading matchups for Duke Energy
Pair Trading with Basic Materials and Duke Energy
The main advantage of trading using opposite Basic Materials and Duke Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials position performs unexpectedly, Duke Energy 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 Duke Energy will offset losses from the drop in Duke Energy's long position.| Basic Materials vs. Uber Technologies | Basic Materials vs. Palantir Technologies | Basic Materials vs. Marvell Technology | Basic Materials vs. Align Technology |
| Duke Energy vs. Capital One Financial | Duke Energy vs. Autohome | Duke Energy vs. Waste Management | Duke Energy vs. STMicroelectronics NV |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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