Correlation Between Materials Portfolio and Utilities Portfolio

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

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

Diversification Opportunities for Materials Portfolio and Utilities Portfolio

0.77

Correlation Coefficient

Materials Portfolio  Utilities Portfolio

Poor diversification

The 3 months correlation between Materials and Utilities is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Materials Portfolio Materials and Utilities Portfolio Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Utilities Portfolio 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 Materials are associated (or correlated) with Utilities Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Utilities Portfolio has no effect on the direction of Materials Portfolio i.e., Materials Portfolio and Utilities Portfolio go up and down completely randomly.

Pair Corralation between Materials Portfolio and Utilities Portfolio

Assuming the 90 days horizon Materials Portfolio is expected to generate 3.2 times less return on investment than Utilities Portfolio. But when comparing it to its historical volatility, Materials Portfolio Materials is 1.08 times less risky than Utilities Portfolio. It trades about 0.04 of its potential returns per unit of risk. Utilities Portfolio Utilities is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  9,871  in Utilities Portfolio Utilities on September 11, 2024 and sell it today you would earn a total of  3,048  from holding Utilities Portfolio Utilities or generate 30.88% return on investment over 90 days.

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

Materials Portfolio Materials  vs.  Utilities Portfolio Utilities

Materials Portfolio

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Materials Portfolio Materials are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Materials Portfolio is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Utilities Portfolio

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Utilities Portfolio Utilities are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Utilities Portfolio may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Materials Portfolio and Utilities Portfolio

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

The idea behind Materials Portfolio Materials and Utilities Portfolio Utilities 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.