Correlation Between Computers Portfolio and Consumer Finance

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

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

Diversification Opportunities for Computers Portfolio and Consumer Finance

0.8

Correlation Coefficient

Computers Portfolio  Consumer Finance

Very poor diversification

The 3 months correlation between Computers and Consumer is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Computers Portfolio Puters and Consumer Finance Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumer Finance Por and Computers 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 Computers Portfolio Puters are associated (or correlated) with Consumer Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumer Finance Por has no effect on the direction of Computers Portfolio i.e., Computers Portfolio and Consumer Finance go up and down completely randomly.

Pair Corralation between Computers Portfolio and Consumer Finance

Assuming the 90 days horizon Computers Portfolio Puters is expected to generate 1.04 times more return on investment than Consumer Finance. However, Computers Portfolio is 1.04 times more volatile than Consumer Finance Portfolio. It trades about -0.03 of its potential returns per unit of risk. Consumer Finance Portfolio is currently generating about -0.07 per unit of risk. If you would invest  10,850  in Computers Portfolio Puters on December 30, 2024 and sell it today you would lose (348.00) from holding Computers Portfolio Puters or give up 3.21% of portfolio value over 90 days.

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

Computers Portfolio Puters  vs.  Consumer Finance Portfolio

Computers Portfolio

Risk-Adjusted Performance

Very Weak

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

Consumer Finance Por

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Computers Portfolio and Consumer Finance

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

The idea behind Computers Portfolio Puters and Consumer Finance Portfolio 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.