Correlation Between Basic Materials and HEDGE SEED

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

By analyzing existing cross correlation between Basic Materials and HEDGE SEED FUNDO, you can compare the effects of market volatilities on Basic Materials and HEDGE SEED 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 Basic Materials with a short position of HEDGE SEED. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and HEDGE SEED.

Diversification Opportunities for Basic Materials and HEDGE SEED

0.66

Correlation Coefficient

Basic Materials  HEDGE SEED

Poor diversification

The 3 months correlation between Basic and HEDGE is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials and HEDGE SEED FUNDO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HEDGE SEED FUNDO and Basic Materials 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 Basic Materials are associated (or correlated) with HEDGE SEED. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HEDGE SEED FUNDO has no effect on the direction of Basic Materials i.e., Basic Materials and HEDGE SEED go up and down completely randomly.

Pair Corralation between Basic Materials and HEDGE SEED

Assuming the 90 days trading horizon Basic Materials is expected to generate 6.2 times more return on investment than HEDGE SEED. However, Basic Materials is 6.2 times more volatile than HEDGE SEED FUNDO. It trades about 0.04 of its potential returns per unit of risk. HEDGE SEED FUNDO is currently generating about 0.21 per unit of risk. If you would invest  561,479  in Basic Materials on September 14, 2024 and sell it today you would earn a total of  15,760  from holding Basic Materials or generate 2.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.88%
Values	Daily Returns

Basic Materials  vs.  HEDGE SEED FUNDO

Pair Trading with Basic Materials and HEDGE SEED

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

The idea behind Basic Materials and HEDGE SEED FUNDO 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.