Correlation Between Banking Fund and Basic Materials
Can any of the company-specific risk be diversified away by investing in both Banking Fund and Basic Materials 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 Basic Materials 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 Basic Materials Fund, you can compare the effects of market volatilities on Banking Fund and Basic Materials 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 Basic Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banking Fund and Basic Materials.
Diversification Opportunities for Banking Fund and Basic Materials
0.22 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Banking and Basic is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Banking Fund Class and Basic Materials Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Basic Materials 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 Basic Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Basic Materials has no effect on the direction of Banking Fund i.e., Banking Fund and Basic Materials go up and down completely randomly.
Pair Corralation between Banking Fund and Basic Materials
Assuming the 90 days horizon Banking Fund Class is expected to generate 1.02 times more return on investment than Basic Materials. However, Banking Fund is 1.02 times more volatile than Basic Materials Fund. It trades about -0.08 of its potential returns per unit of risk. Basic Materials Fund is currently generating about -0.13 per unit of risk. If you would invest 9,628 in Banking Fund Class on September 12, 2024 and sell it today you would lose (140.00) from holding Banking Fund Class or give up 1.45% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Banking Fund Class vs. Basic Materials Fund
Performance |
| Timeline |
| Banking Fund Class |
| Basic Materials |
Banking Fund and Basic Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Banking Fund and Basic Materials
The main advantage of trading using opposite Banking Fund and Basic Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Banking Fund position performs unexpectedly, Basic Materials 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 Basic Materials will offset losses from the drop in Basic Materials' long position.| Banking Fund vs. Simt Real Estate | Banking Fund vs. Vy Clarion Real | Banking Fund vs. Fidelity Real Estate | Banking Fund vs. Deutsche Real Estate |
| Basic Materials vs. T Rowe Price | Basic Materials vs. Gmo Trust | Basic Materials vs. Gmo Resources | Basic Materials vs. Materials Portfolio Fidelity |
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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