Correlation Between Banking Fund and Electronics Fund
Can any of the company-specific risk be diversified away by investing in both Banking Fund and Electronics 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 Banking Fund and Electronics Fund into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Banking Fund Investor and Electronics Fund Class, you can compare the effects of market volatilities on Banking Fund and Electronics 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 Banking Fund with a short position of Electronics Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banking Fund and Electronics Fund.
Diversification Opportunities for Banking Fund and Electronics Fund
-0.4 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Banking and Electronics is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Banking Fund Investor and Electronics Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electronics Fund Class 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 Investor are associated (or correlated) with Electronics Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electronics Fund Class has no effect on the direction of Banking Fund i.e., Banking Fund and Electronics Fund go up and down completely randomly.
Pair Corralation between Banking Fund and Electronics Fund
Assuming the 90 days horizon Banking Fund is expected to generate 2.47 times less return on investment than Electronics Fund. But when comparing it to its historical volatility, Banking Fund Investor is 1.2 times less risky than Electronics Fund. It trades about 0.03 of its potential returns per unit of risk. Electronics Fund Class is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 19,241 in Electronics Fund Class on September 29, 2024 and sell it today you would earn a total of 13,707 from holding Electronics Fund Class or generate 71.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
Banking Fund Investor vs. Electronics Fund Class
Performance |
| Timeline |
| Banking Fund Investor |
| Electronics Fund Class |
Banking Fund and Electronics Fund Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Banking Fund and Electronics Fund
The main advantage of trading using opposite Banking Fund and Electronics Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Banking Fund position performs unexpectedly, Electronics 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 Electronics Fund will offset losses from the drop in Electronics Fund's long position.| Banking Fund vs. Financial Services Fund | Banking Fund vs. Health Care Fund | Banking Fund vs. Retailing Fund Investor | Banking Fund vs. Technology Fund Investor |
| Electronics Fund vs. Financial Services Fund | Electronics Fund vs. Telecommunications Fund Investor | Electronics Fund vs. Health Care Fund | Electronics Fund vs. Banking 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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