Correlation Between Financial and GOLDMAN SACHS

Can any of the company-specific risk be diversified away by investing in both Financial and GOLDMAN SACHS 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 GOLDMAN SACHS 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 GOLDMAN SACHS CDR, you can compare the effects of market volatilities on Financial and GOLDMAN SACHS 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 GOLDMAN SACHS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial and GOLDMAN SACHS.

Diversification Opportunities for Financial and GOLDMAN SACHS

0.87

Correlation Coefficient

Financial  GOLDMAN SACHS

Very poor diversification

The 3 months correlation between Financial and GOLDMAN is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Financial 15 Split and GOLDMAN SACHS CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GOLDMAN SACHS CDR 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 GOLDMAN SACHS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GOLDMAN SACHS CDR has no effect on the direction of Financial i.e., Financial and GOLDMAN SACHS go up and down completely randomly.

Pair Corralation between Financial and GOLDMAN SACHS

Assuming the 90 days trading horizon Financial is expected to generate 2.2 times less return on investment than GOLDMAN SACHS. But when comparing it to its historical volatility, Financial 15 Split is 5.22 times less risky than GOLDMAN SACHS. It trades about 0.17 of its potential returns per unit of risk. GOLDMAN SACHS CDR is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,790  in GOLDMAN SACHS CDR on October 1, 2024 and sell it today you would earn a total of  1,078  from holding GOLDMAN SACHS CDR or generate 60.22% return on investment over 90 days.

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

Financial 15 Split  vs.  GOLDMAN SACHS CDR

Financial 15 Split

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Financial 15 Split are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Financial is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

GOLDMAN SACHS CDR

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GOLDMAN SACHS CDR are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, GOLDMAN SACHS displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Financial and GOLDMAN SACHS

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

The idea behind Financial 15 Split and GOLDMAN SACHS CDR 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.