Correlation Between Energy Basic and World Energy
Can any of the company-specific risk be diversified away by investing in both Energy Basic and World Energy 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 Energy Basic and World Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Energy Basic Materials and World Energy Fund, you can compare the effects of market volatilities on Energy Basic and World Energy 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 Energy Basic with a short position of World Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Basic and World Energy.
Diversification Opportunities for Energy Basic and World Energy
0.55 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Energy and World is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Energy Basic Materials and World Energy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on World Energy and Energy Basic 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 Energy Basic Materials are associated (or correlated) with World Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of World Energy has no effect on the direction of Energy Basic i.e., Energy Basic and World Energy go up and down completely randomly.
Pair Corralation between Energy Basic and World Energy
Assuming the 90 days horizon Energy Basic is expected to generate 7.73 times less return on investment than World Energy. But when comparing it to its historical volatility, Energy Basic Materials is 1.44 times less risky than World Energy. It trades about 0.07 of its potential returns per unit of risk. World Energy Fund is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest 1,418 in World Energy Fund on August 24, 2024 and sell it today you would earn a total of 138.00 from holding World Energy Fund or generate 9.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
Energy Basic Materials vs. World Energy Fund
Performance |
| Timeline |
| Energy Basic Materials |
| World Energy |
Energy Basic and World Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Energy Basic and World Energy
The main advantage of trading using opposite Energy Basic and World Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Basic position performs unexpectedly, World Energy 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 World Energy will offset losses from the drop in World Energy's long position.| Energy Basic vs. Prudential Health Sciences | Energy Basic vs. The Hartford Healthcare | Energy Basic vs. Allianzgi Health Sciences | Energy Basic vs. Alphacentric Lifesci Healthcare |
| World Energy vs. Vanguard Energy Fund | World Energy vs. Vanguard Energy Index | World Energy vs. Fidelity Select Portfolios | World Energy vs. Fidelity Advisor Energy |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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