Correlation Between Automotive Portfolio and Wireless Portfolio

Can any of the company-specific risk be diversified away by investing in both Automotive Portfolio and Wireless Portfolio 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 Automotive Portfolio and Wireless Portfolio into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Automotive Portfolio Automotive and Wireless Portfolio Wireless, you can compare the effects of market volatilities on Automotive Portfolio and Wireless Portfolio 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 Automotive Portfolio with a short position of Wireless Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Automotive Portfolio and Wireless Portfolio.

Diversification Opportunities for Automotive Portfolio and Wireless Portfolio

0.45

Correlation Coefficient

Automotive Portfolio  Wireless Portfolio

Very weak diversification

The 3 months correlation between Automotive and Wireless is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Automotive Portfolio Automotiv and Wireless Portfolio Wireless in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wireless Portfolio and Automotive 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 Automotive Portfolio Automotive are associated (or correlated) with Wireless Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wireless Portfolio has no effect on the direction of Automotive Portfolio i.e., Automotive Portfolio and Wireless Portfolio go up and down completely randomly.

Pair Corralation between Automotive Portfolio and Wireless Portfolio

Assuming the 90 days horizon Automotive Portfolio Automotive is expected to under-perform the Wireless Portfolio. In addition to that, Automotive Portfolio is 1.4 times more volatile than Wireless Portfolio Wireless. It trades about -0.04 of its total potential returns per unit of risk. Wireless Portfolio Wireless is currently generating about -0.01 per unit of volatility. If you would invest  1,271  in Wireless Portfolio Wireless on December 25, 2024 and sell it today you would lose (8.00) from holding Wireless Portfolio Wireless or give up 0.63% of portfolio value over 90 days.

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

Automotive Portfolio Automotiv  vs.  Wireless Portfolio Wireless

Automotive Portfolio

Risk-Adjusted Performance

Very Weak

Over the last 90 days Automotive Portfolio Automotive has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Automotive Portfolio is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Wireless Portfolio

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wireless Portfolio Wireless has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, Wireless Portfolio is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Automotive Portfolio and Wireless Portfolio

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

The idea behind Automotive Portfolio Automotive and Wireless Portfolio Wireless 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.