Correlation Between Consumer Staples and Consumer Products

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

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

Diversification Opportunities for Consumer Staples and Consumer Products

0.57

Correlation Coefficient

Consumer Staples  Consumer Products

Very weak diversification

The 3 months correlation between Consumer and Consumer is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Staples Portfolio and Consumer Products Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumer Products and Consumer Staples 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 Consumer Staples Portfolio are associated (or correlated) with Consumer Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumer Products has no effect on the direction of Consumer Staples i.e., Consumer Staples and Consumer Products go up and down completely randomly.

Pair Corralation between Consumer Staples and Consumer Products

Assuming the 90 days horizon Consumer Staples Portfolio is expected to under-perform the Consumer Products. In addition to that, Consumer Staples is 1.09 times more volatile than Consumer Products Fund. It trades about -0.2 of its total potential returns per unit of risk. Consumer Products Fund is currently generating about -0.21 per unit of volatility. If you would invest  4,211  in Consumer Products Fund on October 24, 2024 and sell it today you would lose (463.00) from holding Consumer Products Fund or give up 11.0% of portfolio value over 90 days.

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

Consumer Staples Portfolio  vs.  Consumer Products Fund

Consumer Staples Por

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Consumer Staples Portfolio 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 technical and fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Consumer Products

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Consumer Products Fund 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 Consumer Staples and Consumer Products

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

The idea behind Consumer Staples Portfolio and Consumer Products Fund 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.