Correlation Between Biotechnology Ultrasector and Consumer Services

Can any of the company-specific risk be diversified away by investing in both Biotechnology Ultrasector and Consumer Services 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 Biotechnology Ultrasector and Consumer Services into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Biotechnology Ultrasector Profund and Consumer Services Ultrasector, you can compare the effects of market volatilities on Biotechnology Ultrasector and Consumer Services 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 Biotechnology Ultrasector with a short position of Consumer Services. Check out your portfolio center. Please also check ongoing floating volatility patterns of Biotechnology Ultrasector and Consumer Services.

Diversification Opportunities for Biotechnology Ultrasector and Consumer Services

-0.45

Correlation Coefficient

Biotechnology Ultrasector  Consumer Services

Very good diversification

The 3 months correlation between Biotechnology and Consumer is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Biotechnology Ultrasector Prof and Consumer Services Ultrasector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumer Services and Biotechnology Ultrasector 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 Biotechnology Ultrasector Profund are associated (or correlated) with Consumer Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumer Services has no effect on the direction of Biotechnology Ultrasector i.e., Biotechnology Ultrasector and Consumer Services go up and down completely randomly.

Pair Corralation between Biotechnology Ultrasector and Consumer Services

Assuming the 90 days horizon Biotechnology Ultrasector Profund is expected to under-perform the Consumer Services. In addition to that, Biotechnology Ultrasector is 1.25 times more volatile than Consumer Services Ultrasector. It trades about -0.07 of its total potential returns per unit of risk. Consumer Services Ultrasector is currently generating about 0.2 per unit of volatility. If you would invest  5,086  in Consumer Services Ultrasector on September 26, 2024 and sell it today you would earn a total of  1,258  from holding Consumer Services Ultrasector or generate 24.73% return on investment over 90 days.

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

Biotechnology Ultrasector Prof  vs.  Consumer Services Ultrasector

Biotechnology Ultrasector

Risk-Adjusted Performance

0 of 100

Very Weak

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

Consumer Services

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Consumer Services Ultrasector are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Consumer Services showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Biotechnology Ultrasector and Consumer Services

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

The idea behind Biotechnology Ultrasector Profund and Consumer Services Ultrasector 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.