Correlation Between Energy Leaders and First Asset

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

By analyzing existing cross correlation between Energy Leaders Plus and First Asset Energy, you can compare the effects of market volatilities on Energy Leaders and First Asset 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 Energy Leaders with a short position of First Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Leaders and First Asset.

Diversification Opportunities for Energy Leaders and First Asset

0.97

Correlation Coefficient

Energy Leaders  First Asset

Almost no diversification

The 3 months correlation between Energy and First is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Energy Leaders Plus and First Asset Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Asset Energy and Energy Leaders 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 Energy Leaders Plus are associated (or correlated) with First Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Asset Energy has no effect on the direction of Energy Leaders i.e., Energy Leaders and First Asset go up and down completely randomly.

Pair Corralation between Energy Leaders and First Asset

Assuming the 90 days trading horizon Energy Leaders Plus is expected to under-perform the First Asset. But the etf apears to be less risky and, when comparing its historical volatility, Energy Leaders Plus is 1.02 times less risky than First Asset. The etf trades about -0.04 of its potential returns per unit of risk. The First Asset Energy is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  563.00  in First Asset Energy on December 1, 2024 and sell it today you would lose (9.00) from holding First Asset Energy or give up 1.6% of portfolio value over 90 days.

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

Energy Leaders Plus  vs.  First Asset Energy

Energy Leaders Plus

Risk-Adjusted Performance

Very Weak

Over the last 90 days Energy Leaders Plus has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Energy Leaders is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

First Asset Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Asset Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, First Asset is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Energy Leaders and First Asset

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

The idea behind Energy Leaders Plus and First Asset Energy 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.