Correlation Between World Energy and Science Technology

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

By analyzing existing cross correlation between World Energy Fund and Science Technology Fund, you can compare the effects of market volatilities on World Energy and Science 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 World Energy with a short position of Science Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of World Energy and Science Technology.

Diversification Opportunities for World Energy and Science Technology

0.67

Correlation Coefficient

World Energy  Science Technology

Poor diversification

The 3 months correlation between World and Science is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding World Energy Fund and Science Technology Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Science Technology and World Energy 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 World Energy Fund are associated (or correlated) with Science Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Science Technology has no effect on the direction of World Energy i.e., World Energy and Science Technology go up and down completely randomly.

Pair Corralation between World Energy and Science Technology

Assuming the 90 days horizon World Energy Fund is expected to generate 0.87 times more return on investment than Science Technology. However, World Energy Fund is 1.15 times less risky than Science Technology. It trades about -0.02 of its potential returns per unit of risk. Science Technology Fund is currently generating about -0.12 per unit of risk. If you would invest  1,510  in World Energy Fund on October 7, 2024 and sell it today you would lose (12.00) from holding World Energy Fund or give up 0.79% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

World Energy Fund  vs.  Science Technology Fund

World Energy

Risk-Adjusted Performance

5 of 100

Modest

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

Science Technology

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Science Technology Fund are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Science Technology may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with World Energy and Science Technology

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

The idea behind World Energy Fund and Science Technology Fund 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.