Correlation Between Defense And and Chemicals Portfolio

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

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

Diversification Opportunities for Defense And and Chemicals Portfolio

0.85

Correlation Coefficient

Defense And  Chemicals Portfolio

Very poor diversification

The 3 months correlation between Defense and Chemicals is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Defense And Aerospace and Chemicals Portfolio Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chemicals Portfolio and Defense And 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 Defense And Aerospace are associated (or correlated) with Chemicals Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chemicals Portfolio has no effect on the direction of Defense And i.e., Defense And and Chemicals Portfolio go up and down completely randomly.

Pair Corralation between Defense And and Chemicals Portfolio

Assuming the 90 days horizon Defense And Aerospace is expected to generate 1.51 times more return on investment than Chemicals Portfolio. However, Defense And is 1.51 times more volatile than Chemicals Portfolio Chemicals. It trades about -0.21 of its potential returns per unit of risk. Chemicals Portfolio Chemicals is currently generating about -0.51 per unit of risk. If you would invest  1,959  in Defense And Aerospace on October 12, 2024 and sell it today you would lose (127.00) from holding Defense And Aerospace or give up 6.48% of portfolio value over 90 days.

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

Defense And Aerospace  vs.  Chemicals Portfolio Chemicals

Defense And Aerospace

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Defense And Aerospace has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Chemicals Portfolio

Risk-Adjusted Performance

0 of 100

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 weak performance in the last few months, the Fund's technical indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Defense And and Chemicals Portfolio

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

The idea behind Defense And Aerospace and Chemicals Portfolio Chemicals 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.