Correlation Between Financial Services and Energy Basic
Can any of the company-specific risk be diversified away by investing in both Financial Services and Energy Basic 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 Financial Services and Energy Basic into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Financial Services Portfolio and Energy Basic Materials, you can compare the effects of market volatilities on Financial Services and Energy Basic 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 Financial Services with a short position of Energy Basic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial Services and Energy Basic.
Diversification Opportunities for Financial Services and Energy Basic
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Financial and Energy is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Financial Services Portfolio and Energy Basic Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Basic Materials and Financial Services 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 Financial Services Portfolio are associated (or correlated) with Energy Basic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Basic Materials has no effect on the direction of Financial Services i.e., Financial Services and Energy Basic go up and down completely randomly.
Pair Corralation between Financial Services and Energy Basic
Assuming the 90 days horizon Financial Services Portfolio is expected to generate 1.21 times more return on investment than Energy Basic. However, Financial Services is 1.21 times more volatile than Energy Basic Materials. It trades about 0.28 of its potential returns per unit of risk. Energy Basic Materials is currently generating about 0.15 per unit of risk. If you would invest 1,189 in Financial Services Portfolio on November 6, 2024 and sell it today you would earn a total of 63.00 from holding Financial Services Portfolio or generate 5.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Financial Services Portfolio vs. Energy Basic Materials
Performance |
| Timeline |
| Financial Services |
| Energy Basic Materials |
Financial Services and Energy Basic Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financial Services and Energy Basic
The main advantage of trading using opposite Financial Services and Energy Basic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Services position performs unexpectedly, Energy Basic 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 Basic will offset losses from the drop in Energy Basic's long position.| Financial Services vs. Rreef Property Trust | Financial Services vs. Vanguard Reit Index | Financial Services vs. Fidelity Real Estate | Financial Services vs. Nexpoint Real Estate |
| Energy Basic vs. Great West Government Mortgage | Energy Basic vs. Virtus Seix Government | Energy Basic vs. Franklin Adjustable Government | Energy Basic vs. Inverse Government Long |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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