Correlation Between Banking Portfolio and Gold Portfolio

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

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

Diversification Opportunities for Banking Portfolio and Gold Portfolio

-0.26

Correlation Coefficient

Banking Portfolio  Gold Portfolio

Very good diversification

The 3 months correlation between Banking and Gold is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Banking Portfolio Banking and Gold Portfolio Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold Portfolio Gold and Banking 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 Banking Portfolio Banking are associated (or correlated) with Gold Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gold Portfolio Gold has no effect on the direction of Banking Portfolio i.e., Banking Portfolio and Gold Portfolio go up and down completely randomly.

Pair Corralation between Banking Portfolio and Gold Portfolio

Assuming the 90 days horizon Banking Portfolio Banking is expected to generate 1.17 times more return on investment than Gold Portfolio. However, Banking Portfolio is 1.17 times more volatile than Gold Portfolio Gold. It trades about 0.15 of its potential returns per unit of risk. Gold Portfolio Gold is currently generating about 0.03 per unit of risk. If you would invest  2,980  in Banking Portfolio Banking on August 31, 2024 and sell it today you would earn a total of  570.00  from holding Banking Portfolio Banking or generate 19.13% return on investment over 90 days.

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

Banking Portfolio Banking  vs.  Gold Portfolio Gold

Banking Portfolio Banking

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Banking Portfolio Banking are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental drivers, Banking Portfolio showed solid returns over the last few months and may actually be approaching a breakup point.

Gold Portfolio Gold

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Gold Portfolio Gold are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Gold Portfolio is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Banking Portfolio and Gold Portfolio

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

The idea behind Banking Portfolio Banking and Gold Portfolio Gold 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.