Correlation Between It Services and Retailing Portfolio

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

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

Diversification Opportunities for It Services and Retailing Portfolio

0.77

Correlation Coefficient

It Services  Retailing Portfolio

Poor diversification

The 3 months correlation between FBSOX and Retailing is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding It Services Portfolio and Retailing Portfolio Retailing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Retailing Portfolio and It Services 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 It Services Portfolio are associated (or correlated) with Retailing Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Retailing Portfolio has no effect on the direction of It Services i.e., It Services and Retailing Portfolio go up and down completely randomly.

Pair Corralation between It Services and Retailing Portfolio

Assuming the 90 days horizon It Services Portfolio is expected to generate 0.9 times more return on investment than Retailing Portfolio. However, It Services Portfolio is 1.11 times less risky than Retailing Portfolio. It trades about -0.02 of its potential returns per unit of risk. Retailing Portfolio Retailing is currently generating about -0.12 per unit of risk. If you would invest  6,049  in It Services Portfolio on December 30, 2024 and sell it today you would lose (98.00) from holding It Services Portfolio or give up 1.62% of portfolio value over 90 days.

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

It Services Portfolio  vs.  Retailing Portfolio Retailing

It Services Portfolio

Risk-Adjusted Performance

Very Weak

Over the last 90 days It Services Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, It Services is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Retailing Portfolio

Risk-Adjusted Performance

Very Weak

Over the last 90 days Retailing Portfolio Retailing 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.

Pair Trading with It Services and Retailing Portfolio

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

The idea behind It Services Portfolio and Retailing Portfolio Retailing 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.

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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.