Correlation Between Financial Services and Energy Services
Can any of the company-specific risk be diversified away by investing in both Financial Services and Energy 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 Financial Services and Energy Services 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 Energy Services Fund, you can compare the effects of market volatilities on Financial Services and Energy 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 Financial Services with a short position of Energy Services. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial Services and Energy Services.
Diversification Opportunities for Financial Services and Energy Services
0.36 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Financial and ENERGY is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Financial Services Fund and Energy Services Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Services 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 Energy Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Services has no effect on the direction of Financial Services i.e., Financial Services and Energy Services go up and down completely randomly.
Pair Corralation between Financial Services and Energy Services
Assuming the 90 days horizon Financial Services is expected to generate 1.26 times less return on investment than Energy Services. But when comparing it to its historical volatility, Financial Services Fund is 1.86 times less risky than Energy Services. It trades about 0.28 of its potential returns per unit of risk. Energy Services Fund is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 22,290 in Energy Services Fund on August 29, 2024 and sell it today you would earn a total of 2,196 from holding Energy Services Fund or generate 9.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Financial Services Fund vs. Energy Services Fund
Performance |
| Timeline |
| Financial Services |
| Energy Services |
Financial Services and Energy Services Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financial Services and Energy Services
The main advantage of trading using opposite Financial Services and Energy Services positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Services position performs unexpectedly, Energy 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 Energy Services will offset losses from the drop in Energy Services' 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 |
| Energy Services vs. HUMANA INC | Energy Services vs. Aquagold International | Energy Services vs. Barloworld Ltd ADR | Energy Services vs. Morningstar Unconstrained Allocation |
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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