Correlation Between Basic Materials and US Bancorp
Can any of the company-specific risk be diversified away by investing in both Basic Materials and US Bancorp 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 US Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Basic Materials and US Bancorp, you can compare the effects of market volatilities on Basic Materials and US Bancorp 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 US Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and US Bancorp.
Diversification Opportunities for Basic Materials and US Bancorp
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Basic and USBC34 is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials and US Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Bancorp 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 US Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Bancorp has no effect on the direction of Basic Materials i.e., Basic Materials and US Bancorp go up and down completely randomly.
Pair Corralation between Basic Materials and US Bancorp
Assuming the 90 days trading horizon Basic Materials is expected to under-perform the US Bancorp. But the index apears to be less risky and, when comparing its historical volatility, Basic Materials is 2.13 times less risky than US Bancorp. The index trades about -0.01 of its potential returns per unit of risk. The US Bancorp is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest 6,162 in US Bancorp on August 30, 2024 and sell it today you would earn a total of 1,592 from holding US Bancorp or generate 25.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 97.62% |
| Values | Daily Returns |
Basic Materials vs. US Bancorp
Performance |
| Timeline |
Basic Materials and US Bancorp Volatility Contrast
Predicted Return Density |
| Returns |
Basic Materials
Pair trading matchups for Basic Materials
US Bancorp
Pair trading matchups for US Bancorp
Pair Trading with Basic Materials and US Bancorp
The main advantage of trading using opposite Basic Materials and US Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials position performs unexpectedly, US Bancorp 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 US Bancorp will offset losses from the drop in US Bancorp's long position.| Basic Materials vs. CM Hospitalar SA | Basic Materials vs. Metalurgica Gerdau SA | Basic Materials vs. Broadcom | Basic Materials vs. Multilaser Industrial SA |
| US Bancorp vs. Tyson Foods | US Bancorp vs. Apartment Investment and | US Bancorp vs. Warner Music Group | US Bancorp vs. Multilaser Industrial SA |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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