Correlation Between Materials Portfolio and Consumer Staples

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

Diversification Opportunities for Materials Portfolio and Consumer Staples

0.21

Correlation Coefficient

Materials Portfolio  Consumer Staples

Modest diversification

The 3 months correlation between Materials and Consumer is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Materials Portfolio Fidelity and Consumer Staples Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumer Staples Por 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 Consumer Staples. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumer Staples Por has no effect on the direction of Materials Portfolio i.e., Materials Portfolio and Consumer Staples go up and down completely randomly.

Pair Corralation between Materials Portfolio and Consumer Staples

Assuming the 90 days horizon Materials Portfolio Fidelity is expected to generate 1.11 times more return on investment than Consumer Staples. However, Materials Portfolio is 1.11 times more volatile than Consumer Staples Portfolio. It trades about -0.07 of its potential returns per unit of risk. Consumer Staples Portfolio is currently generating about -0.11 per unit of risk. If you would invest  9,118  in Materials Portfolio Fidelity on December 22, 2024 and sell it today you would lose (575.00) from holding Materials Portfolio Fidelity or give up 6.31% of portfolio value over 90 days.

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

Materials Portfolio Fidelity  vs.  Consumer Staples Portfolio

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 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.

Consumer Staples Por

Risk-Adjusted Performance

Very Weak

Over the last 90 days Consumer Staples Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental 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 Consumer Staples

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

The idea behind Materials Portfolio Fidelity and Consumer Staples Portfolio 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.