Correlation Between Industrials Portfolio and Transportation Portfolio

Can any of the company-specific risk be diversified away by investing in both Industrials Portfolio and Transportation 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 Industrials Portfolio and Transportation Portfolio 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 Transportation Portfolio Transportation, you can compare the effects of market volatilities on Industrials Portfolio and Transportation 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 Industrials Portfolio with a short position of Transportation Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Industrials Portfolio and Transportation Portfolio.

Diversification Opportunities for Industrials Portfolio and Transportation Portfolio

0.95

Correlation Coefficient

Industrials Portfolio  Transportation Portfolio

Almost no diversification

The 3 months correlation between Industrials and Transportation is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Industrials Portfolio Industri and Transportation Portfolio Trans in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transportation Portfolio 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 Transportation Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transportation Portfolio has no effect on the direction of Industrials Portfolio i.e., Industrials Portfolio and Transportation Portfolio go up and down completely randomly.

Pair Corralation between Industrials Portfolio and Transportation Portfolio

Assuming the 90 days horizon Industrials Portfolio Industrials is expected to generate 0.94 times more return on investment than Transportation Portfolio. However, Industrials Portfolio Industrials is 1.07 times less risky than Transportation Portfolio. It trades about 0.23 of its potential returns per unit of risk. Transportation Portfolio Transportation is currently generating about 0.16 per unit of risk. If you would invest  3,960  in Industrials Portfolio Industrials on September 3, 2024 and sell it today you would earn a total of  658.00  from holding Industrials Portfolio Industrials or generate 16.62% return on investment over 90 days.

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

Industrials Portfolio Industri  vs.  Transportation Portfolio Trans

Industrials Portfolio

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Industrials Portfolio Industrials are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Industrials Portfolio showed solid returns over the last few months and may actually be approaching a breakup point.

Transportation Portfolio

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Transportation Portfolio Transportation are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Transportation Portfolio may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Industrials Portfolio and Transportation Portfolio

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

The idea behind Industrials Portfolio Industrials and Transportation Portfolio Transportation 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.