Correlation Between Inverse Sp and Banking Fund

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Can any of the company-specific risk be diversified away by investing in both Inverse Sp and Banking Fund 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 Inverse Sp and Banking Fund into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Inverse Sp 500 and Banking Fund Class, you can compare the effects of market volatilities on Inverse Sp and Banking Fund 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 Inverse Sp with a short position of Banking Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inverse Sp and Banking Fund.

Diversification Opportunities for Inverse Sp and Banking Fund

-0.85
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between Inverse and Banking is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding Inverse Sp 500 and Banking Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banking Fund Class and Inverse Sp 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 Inverse Sp 500 are associated (or correlated) with Banking Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banking Fund Class has no effect on the direction of Inverse Sp i.e., Inverse Sp and Banking Fund go up and down completely randomly.

Pair Corralation between Inverse Sp and Banking Fund

Assuming the 90 days horizon Inverse Sp 500 is expected to under-perform the Banking Fund. But the mutual fund apears to be less risky and, when comparing its historical volatility, Inverse Sp 500 is 1.81 times less risky than Banking Fund. The mutual fund trades about -0.08 of its potential returns per unit of risk. The Banking Fund Class is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  5,351  in Banking Fund Class on September 12, 2024 and sell it today you would earn a total of  2,881  from holding Banking Fund Class or generate 53.84% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Inverse Sp 500  vs.  Banking Fund Class

 Performance 
       Timeline  
Inverse Sp 500 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Inverse Sp 500 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Inverse Sp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Banking Fund Class 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Banking Fund Class are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Banking Fund showed solid returns over the last few months and may actually be approaching a breakup point.

Inverse Sp and Banking Fund Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Inverse Sp and Banking Fund

The main advantage of trading using opposite Inverse Sp and Banking Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Inverse Sp position performs unexpectedly, Banking Fund 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 Banking Fund will offset losses from the drop in Banking Fund's long position.
The idea behind Inverse Sp 500 and Banking Fund Class 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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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.

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