Correlation Between Extended Market and Oil Gas
Can any of the company-specific risk be diversified away by investing in both Extended Market and Oil Gas 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 Extended Market and Oil Gas into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Extended Market Index and Oil Gas Ultrasector, you can compare the effects of market volatilities on Extended Market and Oil Gas 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 Extended Market with a short position of Oil Gas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Extended Market and Oil Gas.
Diversification Opportunities for Extended Market and Oil Gas
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Extended and Oil is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Extended Market Index and Oil Gas Ultrasector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oil Gas Ultrasector and Extended Market 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 Extended Market Index are associated (or correlated) with Oil Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oil Gas Ultrasector has no effect on the direction of Extended Market i.e., Extended Market and Oil Gas go up and down completely randomly.
Pair Corralation between Extended Market and Oil Gas
Assuming the 90 days horizon Extended Market is expected to generate 1.04 times less return on investment than Oil Gas. But when comparing it to its historical volatility, Extended Market Index is 1.28 times less risky than Oil Gas. It trades about 0.33 of its potential returns per unit of risk. Oil Gas Ultrasector is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 3,660 in Oil Gas Ultrasector on September 4, 2024 and sell it today you would earn a total of 328.00 from holding Oil Gas Ultrasector or generate 8.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.24% |
| Values | Daily Returns |
Extended Market Index vs. Oil Gas Ultrasector
Performance |
| Timeline |
| Extended Market Index |
| Oil Gas Ultrasector |
Extended Market and Oil Gas Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Extended Market and Oil Gas
The main advantage of trading using opposite Extended Market and Oil Gas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Extended Market position performs unexpectedly, Oil Gas 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 Oil Gas will offset losses from the drop in Oil Gas' long position.| Extended Market vs. Oil Gas Ultrasector | Extended Market vs. Clearbridge Energy Mlp | Extended Market vs. Dreyfus Natural Resources | Extended Market vs. Jennison Natural Resources |
| Oil Gas vs. Oil Gas Ultrasector | Oil Gas vs. Ultramid Cap Profund Ultramid Cap | Oil Gas vs. Precious Metals Ultrasector | Oil Gas vs. Real Estate Ultrasector |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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