Correlation Between Materials Portfolio and Utilities Portfolio

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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

0.79
  Correlation Coefficient

Poor diversification

The 3 months correlation between Materials and Utilities is 0.79. 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 2.14 times less return on investment than Utilities Portfolio. In addition to that, Materials Portfolio is 1.02 times more volatile than Utilities Portfolio Utilities. It trades about 0.02 of its total potential returns per unit of risk. Utilities Portfolio Utilities is currently generating about 0.05 per unit of volatility. If you would invest  10,258  in Utilities Portfolio Utilities on September 6, 2024 and sell it today you would earn a total of  2,745  from holding Utilities Portfolio Utilities or generate 26.76% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Materials Portfolio Materials  vs.  Utilities Portfolio Utilities

 Performance 
       Timeline  
Materials Portfolio 

Risk-Adjusted Performance

13 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Materials Portfolio Materials are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Materials Portfolio may actually be approaching a critical reversion point that can send shares even higher in January 2025.
Utilities Portfolio 

Risk-Adjusted Performance

13 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Utilities Portfolio Utilities are ranked lower than 13 (%) 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.

Materials Portfolio and Utilities Portfolio Volatility Contrast

   Predicted Return Density   
       Returns  

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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.

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