Correlation Between Energy Fund and Financial Services
Can any of the company-specific risk be diversified away by investing in both Energy 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 Energy 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 Energy Fund Investor and Financial Services Fund, you can compare the effects of market volatilities on Energy 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 Energy Fund with a short position of Financial Services. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Fund and Financial Services.
Diversification Opportunities for Energy Fund and Financial Services
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Energy and Financial is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Energy Fund Investor and Financial Services Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Services and Energy 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 Energy Fund Investor 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 Energy Fund i.e., Energy Fund and Financial Services go up and down completely randomly.
Pair Corralation between Energy Fund and Financial Services
Assuming the 90 days horizon Energy Fund is expected to generate 17.46 times less return on investment than Financial Services. In addition to that, Energy Fund is 1.33 times more volatile than Financial Services Fund. It trades about 0.01 of its total potential returns per unit of risk. Financial Services Fund is currently generating about 0.21 per unit of volatility. If you would invest 8,258 in Financial Services Fund on August 30, 2024 and sell it today you would earn a total of 2,182 from holding Financial Services Fund or generate 26.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Energy Fund Investor vs. Financial Services Fund
Performance |
| Timeline |
| Energy Fund Investor |
| Financial Services |
Energy Fund and Financial Services Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Energy Fund and Financial Services
The main advantage of trading using opposite Energy Fund and Financial Services positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy 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.| Energy Fund vs. Energy Services Fund | Energy Fund vs. Basic Materials Fund | Energy Fund vs. Health Care Fund | Energy Fund vs. Precious Metals Fund |
| Financial Services vs. Health Care Fund | Financial Services vs. Banking Fund Investor | Financial Services vs. Technology Fund Investor | Financial Services vs. Transportation 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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