Correlation Between Telecommunications and Consumer Finance

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

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

Diversification Opportunities for Telecommunications and Consumer Finance

0.73

Correlation Coefficient

Telecommunications  Consumer Finance

Poor diversification

The 3 months correlation between Telecommunications and Consumer is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Telecommunications Portfolio T 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 Telecommunications 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 Telecommunications Portfolio Telecommunications 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 Telecommunications i.e., Telecommunications and Consumer Finance go up and down completely randomly.

Pair Corralation between Telecommunications and Consumer Finance

Assuming the 90 days horizon Telecommunications Portfolio Telecommunications is expected to under-perform the Consumer Finance. But the mutual fund apears to be less risky and, when comparing its historical volatility, Telecommunications Portfolio Telecommunications is 1.73 times less risky than Consumer Finance. The mutual fund trades about -0.27 of its potential returns per unit of risk. The Consumer Finance Portfolio is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  1,993  in Consumer Finance Portfolio on October 8, 2024 and sell it today you would lose (29.00) from holding Consumer Finance Portfolio or give up 1.46% of portfolio value over 90 days.

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

Telecommunications Portfolio T  vs.  Consumer Finance Portfolio

Telecommunications

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Telecommunications Portfolio Telecommunications are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Telecommunications is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Consumer Finance Por

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Consumer Finance Portfolio are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Consumer Finance may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Telecommunications and Consumer Finance

The main advantage of trading using opposite Telecommunications and Consumer Finance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Telecommunications 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 Telecommunications Portfolio Telecommunications 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.