Correlation Between World Energy and Plumb Equity
Can any of the company-specific risk be diversified away by investing in both World Energy and Plumb Equity 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 Plumb Equity 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 Plumb Equity, you can compare the effects of market volatilities on World Energy and Plumb Equity 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 Plumb Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of World Energy and Plumb Equity.
Diversification Opportunities for World Energy and Plumb Equity
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between World and Plumb is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding World Energy Fund and Plumb Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plumb Equity 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 Plumb Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plumb Equity has no effect on the direction of World Energy i.e., World Energy and Plumb Equity go up and down completely randomly.
Pair Corralation between World Energy and Plumb Equity
Assuming the 90 days horizon World Energy Fund is expected to generate 1.3 times more return on investment than Plumb Equity. However, World Energy is 1.3 times more volatile than Plumb Equity. It trades about -0.02 of its potential returns per unit of risk. Plumb Equity is currently generating about -0.05 per unit of risk. If you would invest 1,487 in World Energy Fund on September 15, 2024 and sell it today you would lose (10.00) from holding World Energy Fund or give up 0.67% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Strong |
Accuracy | 95.45% |
Values | Daily Returns |
World Energy Fund vs. Plumb Equity
Performance |
Timeline |
World Energy |
Plumb Equity |
World Energy and Plumb Equity Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with World Energy and Plumb Equity
The main advantage of trading using opposite World Energy and Plumb Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if World Energy position performs unexpectedly, Plumb Equity 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 Plumb Equity will offset losses from the drop in Plumb Equity's long position.World Energy vs. Jennison Natural Resources | World Energy vs. Icon Natural Resources | World Energy vs. Tortoise Energy Independence | World Energy vs. Clearbridge Energy Mlp |
Plumb Equity vs. Dreyfus Natural Resources | Plumb Equity vs. Alpsalerian Energy Infrastructure | Plumb Equity vs. Franklin Natural Resources | Plumb Equity vs. World Energy Fund |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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