Correlation Between Specialized Technology and Global Technology
Can any of the company-specific risk be diversified away by investing in both Specialized Technology and Global Technology 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 Specialized Technology and Global Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Specialized Technology Fund and Global Technology Portfolio, you can compare the effects of market volatilities on Specialized Technology and Global Technology 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 Specialized Technology with a short position of Global Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Specialized Technology and Global Technology.
Diversification Opportunities for Specialized Technology and Global Technology
0.07 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Specialized and Global is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Specialized Technology Fund and Global Technology Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Technology and Specialized Technology 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 Specialized Technology Fund are associated (or correlated) with Global Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Technology has no effect on the direction of Specialized Technology i.e., Specialized Technology and Global Technology go up and down completely randomly.
Pair Corralation between Specialized Technology and Global Technology
Assuming the 90 days horizon Specialized Technology Fund is expected to generate 0.54 times more return on investment than Global Technology. However, Specialized Technology Fund is 1.84 times less risky than Global Technology. It trades about 0.26 of its potential returns per unit of risk. Global Technology Portfolio is currently generating about 0.07 per unit of risk. If you would invest 1,163 in Specialized Technology Fund on November 3, 2024 and sell it today you would earn a total of 59.00 from holding Specialized Technology Fund or generate 5.07% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.24% |
| Values | Daily Returns |
Specialized Technology Fund vs. Global Technology Portfolio
Performance |
| Timeline |
| Specialized Technology |
| Global Technology |
Specialized Technology and Global Technology Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Specialized Technology and Global Technology
The main advantage of trading using opposite Specialized Technology and Global Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Specialized Technology position performs unexpectedly, Global Technology 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 Global Technology will offset losses from the drop in Global Technology's long position.The idea behind Specialized Technology Fund and Global Technology Portfolio 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.
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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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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