Correlation Between Chemicals Portfolio and Retailing Portfolio

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

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

Diversification Opportunities for Chemicals Portfolio and Retailing Portfolio

0.75

Correlation Coefficient

Chemicals Portfolio  Retailing Portfolio

Poor diversification

The 3 months correlation between Chemicals and Retailing is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Chemicals Portfolio Chemicals and Retailing Portfolio Retailing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Retailing Portfolio and Chemicals 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 Chemicals Portfolio Chemicals are associated (or correlated) with Retailing Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Retailing Portfolio has no effect on the direction of Chemicals Portfolio i.e., Chemicals Portfolio and Retailing Portfolio go up and down completely randomly.

Pair Corralation between Chemicals Portfolio and Retailing Portfolio

Assuming the 90 days horizon Chemicals Portfolio Chemicals is expected to generate 0.78 times more return on investment than Retailing Portfolio. However, Chemicals Portfolio Chemicals is 1.28 times less risky than Retailing Portfolio. It trades about -0.05 of its potential returns per unit of risk. Retailing Portfolio Retailing is currently generating about -0.2 per unit of risk. If you would invest  1,375  in Chemicals Portfolio Chemicals on December 22, 2024 and sell it today you would lose (48.00) from holding Chemicals Portfolio Chemicals or give up 3.49% of portfolio value over 90 days.

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

Chemicals Portfolio Chemicals  vs.  Retailing Portfolio Retailing

Chemicals Portfolio

Risk-Adjusted Performance

Very Weak

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

Retailing Portfolio

Risk-Adjusted Performance

Very Weak

Over the last 90 days Retailing Portfolio Retailing 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 April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Chemicals Portfolio and Retailing Portfolio

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

The idea behind Chemicals Portfolio Chemicals and Retailing Portfolio Retailing 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.