Correlation Between Information Technology and Gold Rain

Can any of the company-specific risk be diversified away by investing in both Information Technology and Gold Rain 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 Information Technology and Gold Rain into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Information Technology Total and Gold Rain Enterprises, you can compare the effects of market volatilities on Information Technology and Gold Rain 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 Information Technology with a short position of Gold Rain. Check out your portfolio center. Please also check ongoing floating volatility patterns of Information Technology and Gold Rain.

Diversification Opportunities for Information Technology and Gold Rain

0.6

Correlation Coefficient

Information Technology  Gold Rain

Poor diversification

The 3 months correlation between Information and Gold is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Information Technology Total and Gold Rain Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold Rain Enterprises and Information 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 Information Technology Total are associated (or correlated) with Gold Rain. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gold Rain Enterprises has no effect on the direction of Information Technology i.e., Information Technology and Gold Rain go up and down completely randomly.

Pair Corralation between Information Technology and Gold Rain

Assuming the 90 days trading horizon Information Technology is expected to generate 1.28 times less return on investment than Gold Rain. But when comparing it to its historical volatility, Information Technology Total is 1.24 times less risky than Gold Rain. It trades about 0.08 of its potential returns per unit of risk. Gold Rain Enterprises is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  5,130  in Gold Rain Enterprises on December 25, 2024 and sell it today you would earn a total of  640.00  from holding Gold Rain Enterprises or generate 12.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.21%
Values	Daily Returns

Information Technology Total  vs.  Gold Rain Enterprises

Information Technology

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Information Technology Total are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Information Technology showed solid returns over the last few months and may actually be approaching a breakup point.

Gold Rain Enterprises

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Gold Rain Enterprises are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Gold Rain showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Information Technology and Gold Rain

The main advantage of trading using opposite Information Technology and Gold Rain positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Information Technology position performs unexpectedly, Gold Rain 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 Gold Rain will offset losses from the drop in Gold Rain's long position.

The idea behind Information Technology Total and Gold Rain Enterprises 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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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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.