Correlation Between Power Momentum and Icon Information

Can any of the company-specific risk be diversified away by investing in both Power Momentum and Icon Information 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 Power Momentum and Icon Information into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Power Momentum Index and Icon Information Technology, you can compare the effects of market volatilities on Power Momentum and Icon Information 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 Power Momentum with a short position of Icon Information. Check out your portfolio center. Please also check ongoing floating volatility patterns of Power Momentum and Icon Information.

Diversification Opportunities for Power Momentum and Icon Information

0.16

Correlation Coefficient

Power Momentum  Icon Information

Average diversification

The 3 months correlation between Power and Icon is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Power Momentum Index and Icon Information Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Icon Information Tec and Power Momentum 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 Power Momentum Index are associated (or correlated) with Icon Information. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Icon Information Tec has no effect on the direction of Power Momentum i.e., Power Momentum and Icon Information go up and down completely randomly.

Pair Corralation between Power Momentum and Icon Information

Assuming the 90 days horizon Power Momentum Index is expected to generate 0.8 times more return on investment than Icon Information. However, Power Momentum Index is 1.26 times less risky than Icon Information. It trades about -0.13 of its potential returns per unit of risk. Icon Information Technology is currently generating about -0.22 per unit of risk. If you would invest  1,419  in Power Momentum Index on September 23, 2024 and sell it today you would lose (44.00) from holding Power Momentum Index or give up 3.1% of portfolio value over 90 days.

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

Power Momentum Index  vs.  Icon Information Technology

Power Momentum Index

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Power Momentum Index are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Power Momentum is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Icon Information Tec

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Power Momentum and Icon Information

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

The idea behind Power Momentum Index and Icon Information Technology 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.