Correlation Between Banking Portfolio and Consumer Discretionary

Can any of the company-specific risk be diversified away by investing in both Banking Portfolio and Consumer Discretionary 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 Consumer Discretionary 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 Consumer Discretionary Portfolio, you can compare the effects of market volatilities on Banking Portfolio and Consumer Discretionary 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 Consumer Discretionary. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banking Portfolio and Consumer Discretionary.

Diversification Opportunities for Banking Portfolio and Consumer Discretionary

0.84

Correlation Coefficient

Banking Portfolio  Consumer Discretionary

Very poor diversification

The 3 months correlation between Banking and Consumer is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Banking Portfolio Banking and Consumer Discretionary Portfol in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumer Discretionary 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 Consumer Discretionary. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumer Discretionary has no effect on the direction of Banking Portfolio i.e., Banking Portfolio and Consumer Discretionary go up and down completely randomly.

Pair Corralation between Banking Portfolio and Consumer Discretionary

Assuming the 90 days horizon Banking Portfolio Banking is expected to generate 0.98 times more return on investment than Consumer Discretionary. However, Banking Portfolio Banking is 1.02 times less risky than Consumer Discretionary. It trades about -0.06 of its potential returns per unit of risk. Consumer Discretionary Portfolio is currently generating about -0.16 per unit of risk. If you would invest  3,121  in Banking Portfolio Banking on December 30, 2024 and sell it today you would lose (180.00) from holding Banking Portfolio Banking or give up 5.77% of portfolio value over 90 days.

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

Banking Portfolio Banking  vs.  Consumer Discretionary Portfol

Banking Portfolio Banking

Risk-Adjusted Performance

Very Weak

Over the last 90 days Banking Portfolio Banking has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental drivers, Banking Portfolio is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Consumer Discretionary

Risk-Adjusted Performance

Very Weak

Over the last 90 days Consumer Discretionary Portfolio 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 basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Banking Portfolio and Consumer Discretionary

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

The idea behind Banking Portfolio Banking and Consumer Discretionary Portfolio 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.