Correlation Between Materials Portfolio and Jennison Natural

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

Diversification Opportunities for Materials Portfolio and Jennison Natural

0.54

Correlation Coefficient

Materials Portfolio  Jennison Natural

Very weak diversification

The 3 months correlation between Materials and Jennison is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Materials Portfolio Fidelity and Jennison Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jennison Natural Res 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 Jennison Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jennison Natural Res has no effect on the direction of Materials Portfolio i.e., Materials Portfolio and Jennison Natural go up and down completely randomly.

Pair Corralation between Materials Portfolio and Jennison Natural

Assuming the 90 days horizon Materials Portfolio is expected to generate 1.51 times less return on investment than Jennison Natural. But when comparing it to its historical volatility, Materials Portfolio Fidelity is 1.22 times less risky than Jennison Natural. It trades about 0.06 of its potential returns per unit of risk. Jennison Natural Resources is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,978  in Jennison Natural Resources on September 12, 2024 and sell it today you would earn a total of  198.00  from holding Jennison Natural Resources or generate 4.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Materials Portfolio Fidelity  vs.  Jennison Natural Resources

Materials Portfolio

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Materials Portfolio Fidelity are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Materials Portfolio is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Jennison Natural Res

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Jennison Natural Resources are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Jennison Natural 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 Jennison Natural

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

The idea behind Materials Portfolio Fidelity and Jennison 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.

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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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.