Correlation Between Materials Portfolio and Icon Natural

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

Diversification Opportunities for Materials Portfolio and Icon Natural

0.77

Correlation Coefficient

Materials Portfolio  Icon Natural

Poor diversification

The 3 months correlation between Materials and Icon is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Materials Portfolio Fidelity and Icon Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Icon Natural Resources 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 Icon Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Icon Natural Resources has no effect on the direction of Materials Portfolio i.e., Materials Portfolio and Icon Natural go up and down completely randomly.

Pair Corralation between Materials Portfolio and Icon Natural

Assuming the 90 days horizon Materials Portfolio Fidelity is expected to under-perform the Icon Natural. But the mutual fund apears to be less risky and, when comparing its historical volatility, Materials Portfolio Fidelity is 1.09 times less risky than Icon Natural. The mutual fund trades about -0.23 of its potential returns per unit of risk. The Icon Natural Resources is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  1,868  in Icon Natural Resources on October 7, 2024 and sell it today you would lose (136.00) from holding Icon Natural Resources or give up 7.28% of portfolio value over 90 days.

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

Materials Portfolio Fidelity  vs.  Icon Natural Resources

Materials Portfolio

Risk-Adjusted Performance

0 of 100

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 basic 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.

Icon Natural Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Icon Natural Resources has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's primary 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 Materials Portfolio and Icon Natural

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

The idea behind Materials Portfolio Fidelity and Icon Natural Resources 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.