Correlation Between Financial and Dividend

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

By analyzing existing cross correlation between Financial 15 Split and Dividend 15 Split, you can compare the effects of market volatilities on Financial and Dividend 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 Financial with a short position of Dividend. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial and Dividend.

Diversification Opportunities for Financial and Dividend

0.98

Correlation Coefficient

Financial  Dividend

Almost no diversification

The 3 months correlation between Financial and Dividend is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Financial 15 Split and Dividend 15 Split in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dividend 15 Split and Financial 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 Financial 15 Split are associated (or correlated) with Dividend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dividend 15 Split has no effect on the direction of Financial i.e., Financial and Dividend go up and down completely randomly.

Pair Corralation between Financial and Dividend

Assuming the 90 days trading horizon Financial 15 Split is expected to generate 0.45 times more return on investment than Dividend. However, Financial 15 Split is 2.24 times less risky than Dividend. It trades about 0.67 of its potential returns per unit of risk. Dividend 15 Split is currently generating about 0.18 per unit of risk. If you would invest  1,068  in Financial 15 Split on October 25, 2024 and sell it today you would earn a total of  24.00  from holding Financial 15 Split or generate 2.25% return on investment over 90 days.

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

Financial 15 Split  vs.  Dividend 15 Split

Financial 15 Split

Risk-Adjusted Performance

33 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Financial 15 Split are ranked lower than 33 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Dividend 15 Split

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dividend 15 Split are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Dividend may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Financial and Dividend

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

The idea behind Financial 15 Split and Dividend 15 Split 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.