Correlation Between Firsthand Alternative and Stock Index

Can any of the company-specific risk be diversified away by investing in both Firsthand Alternative and Stock Index 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 Firsthand Alternative and Stock Index into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Firsthand Alternative and Stock Index

0.54

Correlation Coefficient

Firsthand Alternative  Stock Index

Very weak diversification

The 3 months correlation between Firsthand and Stock is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Firsthand Alternative Energy and Stock Index Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stock Index Fund and Firsthand Alternative 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 Firsthand Alternative Energy are associated (or correlated) with Stock Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stock Index Fund has no effect on the direction of Firsthand Alternative i.e., Firsthand Alternative and Stock Index go up and down completely randomly.

Pair Corralation between Firsthand Alternative and Stock Index

Assuming the 90 days horizon Firsthand Alternative Energy is expected to under-perform the Stock Index. In addition to that, Firsthand Alternative is 1.66 times more volatile than Stock Index Fund. It trades about -0.17 of its total potential returns per unit of risk. Stock Index Fund is currently generating about -0.1 per unit of volatility. If you would invest  5,907  in Stock Index Fund on December 30, 2024 and sell it today you would lose (405.00) from holding Stock Index Fund or give up 6.86% of portfolio value over 90 days.

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

Firsthand Alternative Energy  vs.  Stock Index Fund

Firsthand Alternative

Risk-Adjusted Performance

Very Weak

Over the last 90 days Firsthand Alternative Energy has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's technical and fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Stock Index Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days Stock Index Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Firsthand Alternative and Stock Index

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

The idea behind Firsthand Alternative Energy and Stock Index 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.