Correlation Between Industrials Portfolio and Construction

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

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

Diversification Opportunities for Industrials Portfolio and Construction

0.97

Correlation Coefficient

Industrials Portfolio  Construction

Almost no diversification

The 3 months correlation between Industrials and Construction is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Industrials Portfolio Industri and Construction And Housing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Construction And Housing and Industrials Portfolio 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 Industrials Portfolio Industrials are associated (or correlated) with Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Construction And Housing has no effect on the direction of Industrials Portfolio i.e., Industrials Portfolio and Construction go up and down completely randomly.

Pair Corralation between Industrials Portfolio and Construction

Assuming the 90 days horizon Industrials Portfolio Industrials is expected to generate 1.09 times more return on investment than Construction. However, Industrials Portfolio is 1.09 times more volatile than Construction And Housing. It trades about -0.13 of its potential returns per unit of risk. Construction And Housing is currently generating about -0.19 per unit of risk. If you would invest  4,577  in Industrials Portfolio Industrials on December 2, 2024 and sell it today you would lose (443.00) from holding Industrials Portfolio Industrials or give up 9.68% of portfolio value over 90 days.

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

Industrials Portfolio Industri  vs.  Construction And Housing

Industrials Portfolio

Risk-Adjusted Performance

Very Weak

Over the last 90 days Industrials Portfolio Industrials 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.

Construction And Housing

Risk-Adjusted Performance

Very Weak

Over the last 90 days Construction And Housing 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 basic 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.

Pair Trading with Industrials Portfolio and Construction

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

The idea behind Industrials Portfolio Industrials and Construction And Housing 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.