Correlation Between Basic Materials and Monthly Rebalance

Can any of the company-specific risk be diversified away by investing in both Basic Materials and Monthly Rebalance 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 Monthly Rebalance 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 Monthly Rebalance Nasdaq 100, you can compare the effects of market volatilities on Basic Materials and Monthly Rebalance 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 Monthly Rebalance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and Monthly Rebalance.

Diversification Opportunities for Basic Materials and Monthly Rebalance

0.35

Correlation Coefficient

Basic Materials  Monthly Rebalance

Weak diversification

The 3 months correlation between Basic and Monthly is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials Fund and Monthly Rebalance Nasdaq 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Monthly Rebalance 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 Monthly Rebalance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Monthly Rebalance has no effect on the direction of Basic Materials i.e., Basic Materials and Monthly Rebalance go up and down completely randomly.

Pair Corralation between Basic Materials and Monthly Rebalance

Assuming the 90 days horizon Basic Materials Fund is expected to under-perform the Monthly Rebalance. But the mutual fund apears to be less risky and, when comparing its historical volatility, Basic Materials Fund is 1.55 times less risky than Monthly Rebalance. The mutual fund trades about -0.12 of its potential returns per unit of risk. The Monthly Rebalance Nasdaq 100 is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  56,386  in Monthly Rebalance Nasdaq 100 on September 19, 2024 and sell it today you would lose (5,966) from holding Monthly Rebalance Nasdaq 100 or give up 10.58% of portfolio value over 90 days.

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

Basic Materials Fund  vs.  Monthly Rebalance Nasdaq 100

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 fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Monthly Rebalance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Monthly Rebalance Nasdaq 100 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Monthly Rebalance is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Basic Materials and Monthly Rebalance

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

The idea behind Basic Materials Fund and Monthly Rebalance Nasdaq 100 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.