Correlation Between Energy Basic and Spectrum Advisors

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Can any of the company-specific risk be diversified away by investing in both Energy Basic and Spectrum Advisors 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 Spectrum Advisors 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 Spectrum Advisors Preferred, you can compare the effects of market volatilities on Energy Basic and Spectrum Advisors 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 Spectrum Advisors. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Basic and Spectrum Advisors.

Diversification Opportunities for Energy Basic and Spectrum Advisors

0.71
  Correlation Coefficient

Poor diversification

The 3 months correlation between Energy and Spectrum is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Energy Basic Materials and Spectrum Advisors Preferred in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spectrum Advisors 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 Spectrum Advisors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spectrum Advisors has no effect on the direction of Energy Basic i.e., Energy Basic and Spectrum Advisors go up and down completely randomly.

Pair Corralation between Energy Basic and Spectrum Advisors

Assuming the 90 days horizon Energy Basic is expected to generate 2.6 times less return on investment than Spectrum Advisors. In addition to that, Energy Basic is 1.24 times more volatile than Spectrum Advisors Preferred. It trades about 0.11 of its total potential returns per unit of risk. Spectrum Advisors Preferred is currently generating about 0.34 per unit of volatility. If you would invest  1,768  in Spectrum Advisors Preferred on September 4, 2024 and sell it today you would earn a total of  84.00  from holding Spectrum Advisors Preferred or generate 4.75% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Energy Basic Materials  vs.  Spectrum Advisors Preferred

 Performance 
       Timeline  
Energy Basic Materials 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Energy Basic Materials are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Energy Basic is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Spectrum Advisors 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Spectrum Advisors Preferred are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Spectrum Advisors is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Energy Basic and Spectrum Advisors Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Energy Basic and Spectrum Advisors

The main advantage of trading using opposite Energy Basic and Spectrum Advisors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Basic position performs unexpectedly, Spectrum Advisors 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 Spectrum Advisors will offset losses from the drop in Spectrum Advisors' long position.
The idea behind Energy Basic Materials and Spectrum Advisors Preferred pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.

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