Correlation Between Monthly Rebalance and Basic Materials

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

By analyzing existing cross correlation between Monthly Rebalance Nasdaq 100 and Basic Materials Fund, you can compare the effects of market volatilities on Monthly Rebalance and Basic Materials 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 Monthly Rebalance with a short position of Basic Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Monthly Rebalance and Basic Materials.

Diversification Opportunities for Monthly Rebalance and Basic Materials

0.71

Correlation Coefficient

Monthly Rebalance  Basic Materials

Poor diversification

The 3 months correlation between Monthly and Basic is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Monthly Rebalance Nasdaq 100 and Basic Materials Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Basic Materials and Monthly Rebalance 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 Monthly Rebalance Nasdaq 100 are associated (or correlated) with Basic Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Basic Materials has no effect on the direction of Monthly Rebalance i.e., Monthly Rebalance and Basic Materials go up and down completely randomly.

Pair Corralation between Monthly Rebalance and Basic Materials

Assuming the 90 days horizon Monthly Rebalance Nasdaq 100 is expected to generate 2.33 times more return on investment than Basic Materials. However, Monthly Rebalance is 2.33 times more volatile than Basic Materials Fund. It trades about 0.17 of its potential returns per unit of risk. Basic Materials Fund is currently generating about 0.14 per unit of risk. If you would invest  52,732  in Monthly Rebalance Nasdaq 100 on September 5, 2024 and sell it today you would earn a total of  12,569  from holding Monthly Rebalance Nasdaq 100 or generate 23.84% return on investment over 90 days.

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

Monthly Rebalance Nasdaq 100  vs.  Basic Materials Fund

Monthly Rebalance

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Monthly Rebalance Nasdaq 100 are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Monthly Rebalance showed solid returns over the last few months and may actually be approaching a breakup point.

Basic Materials

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Basic Materials Fund are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Basic Materials may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Monthly Rebalance and Basic Materials

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

The idea behind Monthly Rebalance Nasdaq 100 and Basic Materials Fund 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.