Correlation Between Consumer Finance and Telecommunications

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

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

Diversification Opportunities for Consumer Finance and Telecommunications

0.93

Correlation Coefficient

Consumer Finance  Telecommunications

Almost no diversification

The 3 months correlation between Consumer and Telecommunications is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Finance Portfolio and Telecommunications Portfolio T in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telecommunications and Consumer Finance 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 Consumer Finance Portfolio are associated (or correlated) with Telecommunications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telecommunications has no effect on the direction of Consumer Finance i.e., Consumer Finance and Telecommunications go up and down completely randomly.

Pair Corralation between Consumer Finance and Telecommunications

Assuming the 90 days horizon Consumer Finance Portfolio is expected to generate 1.2 times more return on investment than Telecommunications. However, Consumer Finance is 1.2 times more volatile than Telecommunications Portfolio Telecommunications. It trades about 0.21 of its potential returns per unit of risk. Telecommunications Portfolio Telecommunications is currently generating about 0.13 per unit of risk. If you would invest  1,732  in Consumer Finance Portfolio on September 13, 2024 and sell it today you would earn a total of  259.00  from holding Consumer Finance Portfolio or generate 14.95% return on investment over 90 days.

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

Consumer Finance Portfolio  vs.  Telecommunications Portfolio T

Consumer Finance Por

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Consumer Finance Portfolio are ranked lower than 16 (%) 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.

Telecommunications

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Telecommunications Portfolio Telecommunications are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Telecommunications may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Consumer Finance and Telecommunications

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

The idea behind Consumer Finance Portfolio and Telecommunications Portfolio Telecommunications 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.