Correlation Between Banking Fund and Financial Services
Can any of the company-specific risk be diversified away by investing in both Banking Fund and Financial Services 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 Banking Fund and Financial Services into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Banking Fund Class and Financial Services Fund, you can compare the effects of market volatilities on Banking Fund and Financial Services 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 Banking Fund with a short position of Financial Services. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banking Fund and Financial Services.
Diversification Opportunities for Banking Fund and Financial Services
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Banking and Financial is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Banking Fund Class and Financial Services Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Services and Banking Fund 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 Banking Fund Class are associated (or correlated) with Financial Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Services has no effect on the direction of Banking Fund i.e., Banking Fund and Financial Services go up and down completely randomly.
Pair Corralation between Banking Fund and Financial Services
Assuming the 90 days horizon Banking Fund is expected to generate 1.26 times less return on investment than Financial Services. But when comparing it to its historical volatility, Banking Fund Class is 1.32 times less risky than Financial Services. It trades about 0.05 of its potential returns per unit of risk. Financial Services Fund is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 5,227 in Financial Services Fund on September 3, 2024 and sell it today you would earn a total of 2,285 from holding Financial Services Fund or generate 43.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Banking Fund Class vs. Financial Services Fund
Performance |
| Timeline |
| Banking Fund Class |
| Financial Services |
Banking Fund and Financial Services Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Banking Fund and Financial Services
The main advantage of trading using opposite Banking Fund and Financial Services positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Banking Fund position performs unexpectedly, Financial Services 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 Financial Services will offset losses from the drop in Financial Services' long position.| Banking Fund vs. Goldman Sachs Growth | Banking Fund vs. Eip Growth And | Banking Fund vs. Smallcap Growth Fund | Banking Fund vs. Qs Growth Fund |
| Financial Services vs. Absolute Convertible Arbitrage | Financial Services vs. Rationalpier 88 Convertible | Financial Services vs. Calamos Dynamic Convertible | Financial Services vs. Virtus Convertible |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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