Correlation Between Basic Materials and VivoPower International

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

By analyzing existing cross correlation between Basic Materials Fund and VivoPower International PLC, you can compare the effects of market volatilities on Basic Materials and VivoPower International 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 VivoPower International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and VivoPower International.

Diversification Opportunities for Basic Materials and VivoPower International

-0.71

Correlation Coefficient

Basic Materials  VivoPower International

Pay attention - limited upside

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

Pair Corralation between Basic Materials and VivoPower International

Assuming the 90 days horizon Basic Materials Fund is expected to generate 0.11 times more return on investment than VivoPower International. However, Basic Materials Fund is 8.71 times less risky than VivoPower International. It trades about 0.34 of its potential returns per unit of risk. VivoPower International PLC is currently generating about -0.21 per unit of risk. If you would invest  6,397  in Basic Materials Fund on October 26, 2024 and sell it today you would earn a total of  302.00  from holding Basic Materials Fund or generate 4.72% return on investment over 90 days.

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

Basic Materials Fund  vs.  VivoPower International PLC

Basic Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Basic Materials Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

VivoPower International

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in VivoPower International PLC are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, VivoPower International reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Basic Materials and VivoPower International

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

The idea behind Basic Materials Fund and VivoPower International PLC 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.