Correlation Between Retailing Portfolio and Industrials Portfolio

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

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

Diversification Opportunities for Retailing Portfolio and Industrials Portfolio

0.52

Correlation Coefficient

Retailing Portfolio  Industrials Portfolio

Very weak diversification

The 3 months correlation between Retailing and Industrials is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Retailing Portfolio Retailing and Industrials Portfolio Industri in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrials Portfolio and Retailing 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 Retailing Portfolio Retailing are associated (or correlated) with Industrials Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrials Portfolio has no effect on the direction of Retailing Portfolio i.e., Retailing Portfolio and Industrials Portfolio go up and down completely randomly.

Pair Corralation between Retailing Portfolio and Industrials Portfolio

Assuming the 90 days horizon Retailing Portfolio Retailing is expected to generate 1.28 times more return on investment than Industrials Portfolio. However, Retailing Portfolio is 1.28 times more volatile than Industrials Portfolio Industrials. It trades about -0.11 of its potential returns per unit of risk. Industrials Portfolio Industrials is currently generating about -0.43 per unit of risk. If you would invest  2,193  in Retailing Portfolio Retailing on September 29, 2024 and sell it today you would lose (85.00) from holding Retailing Portfolio Retailing or give up 3.88% of portfolio value over 90 days.

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

Retailing Portfolio Retailing  vs.  Industrials Portfolio Industri

Retailing Portfolio

Risk-Adjusted Performance

2 of 100

Weak

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

Industrials Portfolio

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Retailing Portfolio Retailing and Industrials Portfolio Industrials 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.