Correlation Between Basic Materials and Commodities Strategy
Can any of the company-specific risk be diversified away by investing in both Basic Materials and Commodities Strategy 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 Commodities Strategy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Basic Materials Fund and Commodities Strategy Fund, you can compare the effects of market volatilities on Basic Materials and Commodities Strategy 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 Commodities Strategy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and Commodities Strategy.
Diversification Opportunities for Basic Materials and Commodities Strategy
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Basic and Commodities is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials Fund and Commodities Strategy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commodities Strategy 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 Fund are associated (or correlated) with Commodities Strategy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commodities Strategy has no effect on the direction of Basic Materials i.e., Basic Materials and Commodities Strategy go up and down completely randomly.
Pair Corralation between Basic Materials and Commodities Strategy
Assuming the 90 days horizon Basic Materials is expected to generate 14.33 times less return on investment than Commodities Strategy. But when comparing it to its historical volatility, Basic Materials Fund is 1.15 times less risky than Commodities Strategy. It trades about 0.01 of its potential returns per unit of risk. Commodities Strategy Fund is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 2,890 in Commodities Strategy Fund on August 28, 2024 and sell it today you would earn a total of 47.00 from holding Commodities Strategy Fund or generate 1.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Basic Materials Fund vs. Commodities Strategy Fund
Performance |
| Timeline |
| Basic Materials |
| Commodities Strategy |
Basic Materials and Commodities Strategy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Basic Materials and Commodities Strategy
The main advantage of trading using opposite Basic Materials and Commodities Strategy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials position performs unexpectedly, Commodities Strategy 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 Commodities Strategy will offset losses from the drop in Commodities Strategy's long position.| Basic Materials vs. Basic Materials Fund | Basic Materials vs. Energy Services Fund | Basic Materials vs. Energy Fund Class | Basic Materials vs. Basic Materials Fund |
| Commodities Strategy vs. Basic Materials Fund | Commodities Strategy vs. Energy Services Fund | Commodities Strategy vs. Energy Fund Investor | Commodities Strategy vs. Real Estate Fund |
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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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