Correlation Between Inverse Sp and Basic Materials
Can any of the company-specific risk be diversified away by investing in both Inverse Sp 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 Inverse Sp and Basic Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Inverse Sp 500 and Basic Materials Fund, you can compare the effects of market volatilities on Inverse Sp 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 Inverse Sp with a short position of Basic Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inverse Sp and Basic Materials.
Diversification Opportunities for Inverse Sp and Basic Materials
-0.74 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Inverse and Basic is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Inverse Sp 500 and Basic Materials Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Basic Materials and Inverse Sp 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 Inverse Sp 500 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 Inverse Sp i.e., Inverse Sp and Basic Materials go up and down completely randomly.
Pair Corralation between Inverse Sp and Basic Materials
Assuming the 90 days horizon Inverse Sp 500 is expected to under-perform the Basic Materials. But the mutual fund apears to be less risky and, when comparing its historical volatility, Inverse Sp 500 is 1.05 times less risky than Basic Materials. The mutual fund trades about -0.13 of its potential returns per unit of risk. The Basic Materials Fund is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 6,835 in Basic Materials Fund on August 28, 2024 and sell it today you would earn a total of 3.00 from holding Basic Materials Fund or generate 0.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Inverse Sp 500 vs. Basic Materials Fund
Performance |
| Timeline |
| Inverse Sp 500 |
| Basic Materials |
Inverse Sp and Basic Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Inverse Sp and Basic Materials
The main advantage of trading using opposite Inverse Sp and Basic Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Inverse Sp 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.| Inverse Sp vs. Basic Materials Fund | Inverse Sp vs. Basic Materials Fund | Inverse Sp vs. Banking Fund Class | Inverse Sp vs. Basic Materials Fund |
| Basic Materials vs. Basic Materials Fund | Basic Materials vs. Energy Services Fund | Basic Materials vs. Energy Fund Class | Basic Materials vs. Basic Materials Fund |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
Other Complementary Tools
| Portfolio Center All portfolio management and optimization tools to improve performance of your portfolios | |
| Commodity Channel Use Commodity Channel Index to analyze current equity momentum | |
| Bonds Directory Find actively traded corporate debentures issued by US companies | |
| Watchlist Optimization Optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm | |
| Fundamentals Comparison Compare fundamentals across multiple equities to find investing opportunities |