Correlation Between Utilities Portfolio and Materials Portfolio
Can any of the company-specific risk be diversified away by investing in both Utilities Portfolio and Materials 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 Utilities Portfolio and Materials Portfolio into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Utilities Portfolio Utilities and Materials Portfolio Materials, you can compare the effects of market volatilities on Utilities Portfolio and Materials 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 Utilities Portfolio with a short position of Materials Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Utilities Portfolio and Materials Portfolio.
Diversification Opportunities for Utilities Portfolio and Materials Portfolio
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Utilities and Materials is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Utilities Portfolio Utilities and Materials Portfolio Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Materials Portfolio and Utilities 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 Utilities Portfolio Utilities are associated (or correlated) with Materials Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Materials Portfolio has no effect on the direction of Utilities Portfolio i.e., Utilities Portfolio and Materials Portfolio go up and down completely randomly.
Pair Corralation between Utilities Portfolio and Materials Portfolio
Assuming the 90 days horizon Utilities Portfolio Utilities is expected to generate 1.31 times more return on investment than Materials Portfolio. However, Utilities Portfolio is 1.31 times more volatile than Materials Portfolio Materials. It trades about 0.09 of its potential returns per unit of risk. Materials Portfolio Materials is currently generating about -0.12 per unit of risk. If you would invest 12,704 in Utilities Portfolio Utilities on September 9, 2024 and sell it today you would earn a total of 215.00 from holding Utilities Portfolio Utilities or generate 1.69% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Utilities Portfolio Utilities vs. Materials Portfolio Materials
Performance |
Timeline |
Utilities Portfolio |
Materials Portfolio |
Utilities Portfolio and Materials Portfolio Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Utilities Portfolio and Materials Portfolio
The main advantage of trading using opposite Utilities Portfolio and Materials Portfolio positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Utilities Portfolio position performs unexpectedly, Materials 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 Materials Portfolio will offset losses from the drop in Materials Portfolio's long position.The idea behind Utilities Portfolio Utilities and Materials Portfolio Materials 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
Other Complementary Tools
Premium Stories Follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope | |
Latest Portfolios Quick portfolio dashboard that showcases your latest portfolios | |
Equity Analysis Research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities | |
Idea Breakdown Analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes | |
Options Analysis Analyze and evaluate options and option chains as a potential hedge for your portfolios |