Correlation Between Financial Services and Banking Fund
Can any of the company-specific risk be diversified away by investing in both Financial Services 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 Financial Services and Banking Fund into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Financial Services Fund and Banking Fund Class, you can compare the effects of market volatilities on Financial Services 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 Financial Services with a short position of Banking Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial Services and Banking Fund.
Diversification Opportunities for Financial Services and Banking Fund
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Financial and Banking is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Financial Services Fund and Banking Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banking Fund Class and Financial Services 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 Financial Services 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 Class has no effect on the direction of Financial Services i.e., Financial Services and Banking Fund go up and down completely randomly.
Pair Corralation between Financial Services and Banking Fund
Assuming the 90 days horizon Financial Services Fund is expected to generate 0.49 times more return on investment than Banking Fund. However, Financial Services Fund is 2.02 times less risky than Banking Fund. It trades about -0.04 of its potential returns per unit of risk. Banking Fund Class is currently generating about -0.18 per unit of risk. If you would invest 10,030 in Financial Services Fund on September 15, 2024 and sell it today you would lose (61.00) from holding Financial Services Fund or give up 0.61% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Financial Services Fund vs. Banking Fund Class
Performance |
| Timeline |
| Financial Services |
| Banking Fund Class |
Financial Services and Banking Fund Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financial Services and Banking Fund
The main advantage of trading using opposite Financial Services and Banking Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Services 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.| Financial Services vs. Health Care Fund | Financial Services vs. Banking Fund Investor | Financial Services vs. Technology Fund Investor | Financial Services vs. Transportation Fund Investor |
| 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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