Correlation Between Transportation Portfolio and Consumer Finance

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

Diversification Opportunities for Transportation Portfolio and Consumer Finance

0.95

Correlation Coefficient

Transportation Portfolio  Consumer Finance

Almost no diversification

The 3 months correlation between Transportation and Consumer is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Transportation Portfolio Trans and Consumer Finance Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumer Finance Por 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 Consumer Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumer Finance Por has no effect on the direction of Transportation Portfolio i.e., Transportation Portfolio and Consumer Finance go up and down completely randomly.

Pair Corralation between Transportation Portfolio and Consumer Finance

Assuming the 90 days horizon Transportation Portfolio is expected to generate 1.5 times less return on investment than Consumer Finance. In addition to that, Transportation Portfolio is 1.0 times more volatile than Consumer Finance Portfolio. It trades about 0.15 of its total potential returns per unit of risk. Consumer Finance Portfolio is currently generating about 0.23 per unit of volatility. If you would invest  1,711  in Consumer Finance Portfolio on September 1, 2024 and sell it today you would earn a total of  299.00  from holding Consumer Finance Portfolio or generate 17.48% return on investment over 90 days.

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

Transportation Portfolio Trans  vs.  Consumer Finance Portfolio

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 December 2024.

Consumer Finance Por

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Consumer Finance Portfolio are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Consumer Finance showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Transportation Portfolio and Consumer Finance

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

The idea behind Transportation Portfolio Transportation and Consumer Finance 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.

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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.