Correlation Between Materials Portfolio and Income Fund

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

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

Diversification Opportunities for Materials Portfolio and Income Fund

0.56

Correlation Coefficient

Materials Portfolio  Income Fund

Very weak diversification

The 3 months correlation between Materials and Income is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Materials Portfolio Fidelity and Income Fund Institutional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Income Fund Institutional and Materials 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 Materials Portfolio Fidelity are associated (or correlated) with Income Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Income Fund Institutional has no effect on the direction of Materials Portfolio i.e., Materials Portfolio and Income Fund go up and down completely randomly.

Pair Corralation between Materials Portfolio and Income Fund

Assuming the 90 days horizon Materials Portfolio Fidelity is expected to under-perform the Income Fund. In addition to that, Materials Portfolio is 3.98 times more volatile than Income Fund Institutional. It trades about -0.18 of its total potential returns per unit of risk. Income Fund Institutional is currently generating about 0.04 per unit of volatility. If you would invest  920.00  in Income Fund Institutional on December 2, 2024 and sell it today you would earn a total of  6.00  from holding Income Fund Institutional or generate 0.65% return on investment over 90 days.

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

Materials Portfolio Fidelity  vs.  Income Fund Institutional

Materials Portfolio

Risk-Adjusted Performance

Very Weak

Over the last 90 days Materials Portfolio Fidelity 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 April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Income Fund Institutional

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Income Fund Institutional are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Income Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Materials Portfolio and Income Fund

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

The idea behind Materials Portfolio Fidelity and Income Fund Institutional 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 Global Correlations module to find global opportunities by holding instruments from different markets.