Correlation Between Transportation Portfolio and Utilities Portfolio

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

Diversification Opportunities for Transportation Portfolio and Utilities Portfolio

0.79

Correlation Coefficient

Transportation Portfolio  Utilities Portfolio

Poor diversification

The 3 months correlation between Transportation and Utilities is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Transportation Portfolio Trans and Utilities Portfolio Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Utilities 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 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 Transportation Portfolio i.e., Transportation Portfolio and Utilities Portfolio go up and down completely randomly.

Pair Corralation between Transportation Portfolio and Utilities Portfolio

Assuming the 90 days horizon Transportation Portfolio Transportation is expected to under-perform the Utilities Portfolio. In addition to that, Transportation Portfolio is 1.08 times more volatile than Utilities Portfolio Utilities. It trades about -0.12 of its total potential returns per unit of risk. Utilities Portfolio Utilities is currently generating about -0.07 per unit of volatility. If you would invest  12,893  in Utilities Portfolio Utilities on October 21, 2024 and sell it today you would lose (399.00) from holding Utilities Portfolio Utilities or give up 3.09% of portfolio value over 90 days.

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

Transportation Portfolio Trans  vs.  Utilities Portfolio Utilities

Transportation Portfolio

Risk-Adjusted Performance

0 of 100

Very Weak

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

Utilities Portfolio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Utilities Portfolio Utilities has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Utilities 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 Utilities Portfolio

The main advantage of trading using opposite Transportation Portfolio and Utilities Portfolio positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Transportation 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 Transportation Portfolio Transportation 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.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.