Correlation Between US Financial and GOLDMAN SACHS

Can any of the company-specific risk be diversified away by investing in both US 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 US 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 US Financial 15 and GOLDMAN SACHS CDR, you can compare the effects of market volatilities on US 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 US Financial with a short position of GOLDMAN SACHS. Check out your portfolio center. Please also check ongoing floating volatility patterns of US Financial and GOLDMAN SACHS.

Diversification Opportunities for US Financial and GOLDMAN SACHS

0.8

Correlation Coefficient

US Financial  GOLDMAN SACHS

Very poor diversification

The 3 months correlation between FTU-PB and GOLDMAN is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding US Financial 15 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 US 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 US Financial 15 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 US Financial i.e., US Financial and GOLDMAN SACHS go up and down completely randomly.

Pair Corralation between US Financial and GOLDMAN SACHS

Assuming the 90 days trading horizon US Financial 15 is expected to generate 0.87 times more return on investment than GOLDMAN SACHS. However, US Financial 15 is 1.15 times less risky than GOLDMAN SACHS. It trades about -0.02 of its potential returns per unit of risk. GOLDMAN SACHS CDR is currently generating about -0.01 per unit of risk. If you would invest  755.00  in US Financial 15 on December 24, 2024 and sell it today you would lose (19.00) from holding US Financial 15 or give up 2.52% of portfolio value over 90 days.

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

US Financial 15  vs.  GOLDMAN SACHS CDR

US Financial 15

Risk-Adjusted Performance

Very Weak

Over the last 90 days US Financial 15 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, US 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

Very Weak

Over the last 90 days GOLDMAN SACHS CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, GOLDMAN SACHS is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with US Financial and GOLDMAN SACHS

The main advantage of trading using opposite US Financial and GOLDMAN SACHS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if US 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 US Financial 15 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.