Correlation Between Basic Materials and Banking Fund
Can any of the company-specific risk be diversified away by investing in both Basic Materials 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 Basic Materials and Banking Fund 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 Banking Fund Investor, you can compare the effects of market volatilities on Basic Materials 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 Basic Materials with a short position of Banking Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and Banking Fund.
Diversification Opportunities for Basic Materials and Banking Fund
0.21 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Basic and Banking is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials Fund and Banking Fund Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banking Fund Investor 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 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 Investor has no effect on the direction of Basic Materials i.e., Basic Materials and Banking Fund go up and down completely randomly.
Pair Corralation between Basic Materials and Banking Fund
Assuming the 90 days horizon Basic Materials is expected to generate 3.35 times less return on investment than Banking Fund. But when comparing it to its historical volatility, Basic Materials Fund is 1.37 times less risky than Banking Fund. It trades about 0.04 of its potential returns per unit of risk. Banking Fund Investor is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 8,374 in Banking Fund Investor on September 12, 2024 and sell it today you would earn a total of 2,709 from holding Banking Fund Investor or generate 32.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Basic Materials Fund vs. Banking Fund Investor
Performance |
| Timeline |
| Basic Materials |
| Banking Fund Investor |
Basic Materials and Banking Fund Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Basic Materials and Banking Fund
The main advantage of trading using opposite Basic Materials and Banking Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials 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.| Basic Materials vs. Basic Materials Fund | Basic Materials vs. Basic Materials Fund | Basic Materials vs. Basic Materials Fund | Basic Materials vs. Energy Services Fund |
| Banking Fund vs. Financial Services Fund | Banking Fund vs. Health Care Fund | Banking Fund vs. Retailing Fund Investor | Banking Fund vs. Technology Fund Investor |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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