Correlation Between Materials Portfolio and Vanguard Materials

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

Diversification Opportunities for Materials Portfolio and Vanguard Materials

0.99

Correlation Coefficient

Materials Portfolio  Vanguard Materials

No risk reduction

The 3 months correlation between Materials and Vanguard is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Materials Portfolio Fidelity and Vanguard Materials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Materials Index 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 Vanguard Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Materials Index has no effect on the direction of Materials Portfolio i.e., Materials Portfolio and Vanguard Materials go up and down completely randomly.

Pair Corralation between Materials Portfolio and Vanguard Materials

Assuming the 90 days horizon Materials Portfolio Fidelity is expected to generate 1.06 times more return on investment than Vanguard Materials. However, Materials Portfolio is 1.06 times more volatile than Vanguard Materials Index. It trades about 0.06 of its potential returns per unit of risk. Vanguard Materials Index is currently generating about 0.05 per unit of risk. If you would invest  9,052  in Materials Portfolio Fidelity on September 12, 2024 and sell it today you would earn a total of  274.00  from holding Materials Portfolio Fidelity or generate 3.03% return on investment over 90 days.

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

Materials Portfolio Fidelity  vs.  Vanguard Materials Index

Materials Portfolio

Risk-Adjusted Performance

4 of 100

Insignificant

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 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.

Vanguard Materials Index

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Materials Index are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Materials 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 Vanguard Materials

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

The idea behind Materials Portfolio Fidelity and Vanguard Materials Index 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.