Correlation Between Transportation Portfolio and Chemicals Portfolio

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

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

Diversification Opportunities for Transportation Portfolio and Chemicals Portfolio

0.26

Correlation Coefficient

Transportation Portfolio  Chemicals Portfolio

Modest diversification

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

Pair Corralation between Transportation Portfolio and Chemicals Portfolio

Assuming the 90 days horizon Transportation Portfolio Transportation is expected to generate 1.29 times more return on investment than Chemicals Portfolio. However, Transportation Portfolio is 1.29 times more volatile than Chemicals Portfolio Chemicals. It trades about 0.16 of its potential returns per unit of risk. Chemicals Portfolio Chemicals is currently generating about 0.06 per unit of risk. If you would invest  10,809  in Transportation Portfolio Transportation on September 3, 2024 and sell it today you would earn a total of  1,239  from holding Transportation Portfolio Transportation or generate 11.46% return on investment over 90 days.

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

Transportation Portfolio Trans  vs.  Chemicals Portfolio Chemicals

Transportation Portfolio

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Transportation Portfolio Transportation are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Transportation Portfolio may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Chemicals Portfolio

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Chemicals Portfolio Chemicals are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical indicators, Chemicals 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 Transportation Portfolio and Chemicals Portfolio

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

The idea behind Transportation Portfolio Transportation and Chemicals Portfolio Chemicals 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.