Correlation Between Financial Industries and Thornburg Limited

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

By analyzing existing cross correlation between Financial Industries Fund and Thornburg Limited Term, you can compare the effects of market volatilities on Financial Industries and Thornburg Limited 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 Financial Industries with a short position of Thornburg Limited. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial Industries and Thornburg Limited.

Diversification Opportunities for Financial Industries and Thornburg Limited

0.14

Correlation Coefficient

Financial Industries  Thornburg Limited

Average diversification

The 3 months correlation between Financial and Thornburg is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Financial Industries Fund and Thornburg Limited Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thornburg Limited Term and Financial Industries 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 Financial Industries Fund are associated (or correlated) with Thornburg Limited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thornburg Limited Term has no effect on the direction of Financial Industries i.e., Financial Industries and Thornburg Limited go up and down completely randomly.

Pair Corralation between Financial Industries and Thornburg Limited

Assuming the 90 days horizon Financial Industries Fund is expected to under-perform the Thornburg Limited. In addition to that, Financial Industries is 14.89 times more volatile than Thornburg Limited Term. It trades about -0.11 of its total potential returns per unit of risk. Thornburg Limited Term is currently generating about 0.04 per unit of volatility. If you would invest  1,351  in Thornburg Limited Term on December 24, 2024 and sell it today you would earn a total of  1.00  from holding Thornburg Limited Term or generate 0.07% return on investment over 90 days.

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

Financial Industries Fund  vs.  Thornburg Limited Term

Financial Industries

Risk-Adjusted Performance

Very Weak

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

Thornburg Limited Term

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Thornburg Limited Term are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Thornburg Limited is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Financial Industries and Thornburg Limited

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

The idea behind Financial Industries Fund and Thornburg Limited Term 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.