Correlation Between Materials Portfolio and Energy Fund

Can any of the company-specific risk be diversified away by investing in both Materials Portfolio and Energy 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 Energy 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 Energy Fund Class, you can compare the effects of market volatilities on Materials Portfolio and Energy 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 Energy Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Materials Portfolio and Energy Fund.

Diversification Opportunities for Materials Portfolio and Energy Fund

0.42

Correlation Coefficient

Materials Portfolio  Energy Fund

Very weak diversification

The 3 months correlation between Materials and Energy is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Materials Portfolio Fidelity and Energy Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Fund Class 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 Energy Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Fund Class has no effect on the direction of Materials Portfolio i.e., Materials Portfolio and Energy Fund go up and down completely randomly.

Pair Corralation between Materials Portfolio and Energy Fund

Assuming the 90 days horizon Materials Portfolio is expected to generate 1.97 times less return on investment than Energy Fund. But when comparing it to its historical volatility, Materials Portfolio Fidelity is 1.29 times less risky than Energy Fund. It trades about 0.02 of its potential returns per unit of risk. Energy Fund Class is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  18,452  in Energy Fund Class on December 30, 2024 and sell it today you would earn a total of  391.00  from holding Energy Fund Class or generate 2.12% 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.  Energy Fund Class

Materials Portfolio

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Materials Portfolio Fidelity are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Materials Portfolio is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Energy Fund Class

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Fund Class are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Energy 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 Energy Fund

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

The idea behind Materials Portfolio Fidelity and Energy Fund Class 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.

Check out your portfolio center.

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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.