Correlation Between Construction And and Defense And

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

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

Diversification Opportunities for Construction And and Defense And

0.87

Correlation Coefficient

Construction And  Defense And

Very poor diversification

The 3 months correlation between Construction and Defense is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Construction And Housing and Defense And Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Defense And Aerospace and Construction 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 Construction And Housing are associated (or correlated) with Defense And. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Defense And Aerospace has no effect on the direction of Construction And i.e., Construction And and Defense And go up and down completely randomly.

Pair Corralation between Construction And and Defense And

Assuming the 90 days horizon Construction And Housing is expected to under-perform the Defense And. But the mutual fund apears to be less risky and, when comparing its historical volatility, Construction And Housing is 1.21 times less risky than Defense And. The mutual fund trades about -0.46 of its potential returns per unit of risk. The Defense And Aerospace is currently generating about -0.21 of returns per unit of risk over similar time horizon. 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

Construction And Housing  vs.  Defense And Aerospace

Construction And Housing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Construction And Housing 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.

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.

Pair Trading with Construction And and Defense And

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

The idea behind Construction And Housing and Defense And Aerospace 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.