Correlation Between Basic Materials and Strengthening Dollar
Can any of the company-specific risk be diversified away by investing in both Basic Materials and Strengthening Dollar 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 Strengthening Dollar 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 Strengthening Dollar 2x, you can compare the effects of market volatilities on Basic Materials and Strengthening Dollar 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 Strengthening Dollar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and Strengthening Dollar.
Diversification Opportunities for Basic Materials and Strengthening Dollar
0.33 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Basic and Strengthening is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials Fund and Strengthening Dollar 2x in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Strengthening Dollar 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 Strengthening Dollar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Strengthening Dollar has no effect on the direction of Basic Materials i.e., Basic Materials and Strengthening Dollar go up and down completely randomly.
Pair Corralation between Basic Materials and Strengthening Dollar
Assuming the 90 days horizon Basic Materials is expected to generate 44.61 times less return on investment than Strengthening Dollar. But when comparing it to its historical volatility, Basic Materials Fund is 1.18 times less risky than Strengthening Dollar. It trades about 0.01 of its potential returns per unit of risk. Strengthening Dollar 2x is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest 5,518 in Strengthening Dollar 2x on August 28, 2024 and sell it today you would earn a total of 296.00 from holding Strengthening Dollar 2x or generate 5.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Basic Materials Fund vs. Strengthening Dollar 2x
Performance |
| Timeline |
| Basic Materials |
| Strengthening Dollar |
Basic Materials and Strengthening Dollar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Basic Materials and Strengthening Dollar
The main advantage of trading using opposite Basic Materials and Strengthening Dollar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials position performs unexpectedly, Strengthening Dollar 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 Strengthening Dollar will offset losses from the drop in Strengthening Dollar'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 |
| Strengthening Dollar vs. Basic Materials Fund | Strengthening Dollar vs. Basic Materials Fund | Strengthening Dollar vs. Banking Fund Class | Strengthening Dollar vs. Basic Materials 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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