Correlation Between Energy Basic and Energy Services
Can any of the company-specific risk be diversified away by investing in both Energy Basic 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 Energy Basic and Energy Services 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 Energy Services Fund, you can compare the effects of market volatilities on Energy Basic 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 Energy Basic with a short position of Energy Services. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Basic and Energy Services.
Diversification Opportunities for Energy Basic and Energy Services
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Energy and ENERGY is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Energy Basic Materials and Energy Services Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Services 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 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 Energy Basic i.e., Energy Basic and Energy Services go up and down completely randomly.
Pair Corralation between Energy Basic and Energy Services
Assuming the 90 days horizon Energy Basic is expected to generate 1.84 times less return on investment than Energy Services. But when comparing it to its historical volatility, Energy Basic Materials is 1.79 times less risky than Energy Services. It trades about 0.03 of its potential returns per unit of risk. Energy Services Fund is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 20,347 in Energy Services Fund on August 31, 2024 and sell it today you would earn a total of 4,139 from holding Energy Services Fund or generate 20.34% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Energy Basic Materials vs. Energy Services Fund
Performance |
| Timeline |
| Energy Basic Materials |
| Energy Services |
Energy Basic and Energy Services Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Energy Basic and Energy Services
The main advantage of trading using opposite Energy Basic and Energy Services positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Basic 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.| Energy Basic vs. Aqr Large Cap | Energy Basic vs. Tax Managed Large Cap | Energy Basic vs. T Rowe Price | Energy Basic vs. Dana Large Cap |
| Energy Services vs. Energy Fund Investor | Energy Services vs. Basic Materials Fund | Energy Services vs. Electronics Fund Investor | Energy Services vs. Health Care 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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