Correlation Between Global Technology and Energy Service

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

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

Diversification Opportunities for Global Technology and Energy Service

0.0

Correlation Coefficient

Global Technology  Energy Service

Pay attention - limited upside

The 3 months correlation between Global and Energy is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Global Technology Portfolio and Energy Service Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Service Portfolio and Global Technology 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 Global Technology Portfolio are associated (or correlated) with Energy Service. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Service Portfolio has no effect on the direction of Global Technology i.e., Global Technology and Energy Service go up and down completely randomly.

Pair Corralation between Global Technology and Energy Service

If you would invest (100.00) in Energy Service Portfolio on November 29, 2024 and sell it today you would earn a total of  100.00  from holding Energy Service Portfolio or generate -100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Global Technology Portfolio  vs.  Energy Service Portfolio

Global Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Global Technology Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Global Technology is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Energy Service Portfolio

Risk-Adjusted Performance

Very Weak

Over the last 90 days Energy Service Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Energy Service is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Global Technology and Energy Service

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

The idea behind Global Technology Portfolio and Energy Service Portfolio 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.