Correlation Between Basic Materials and Europe 125x

Can any of the company-specific risk be diversified away by investing in both Basic Materials and Europe 125x 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 Europe 125x 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 Europe 125x Strategy, you can compare the effects of market volatilities on Basic Materials and Europe 125x 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 Europe 125x. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and Europe 125x.

Diversification Opportunities for Basic Materials and Europe 125x

0.8

Correlation Coefficient

Basic Materials  Europe 125x

Very poor diversification

The 3 months correlation between Basic and Europe is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials Fund and Europe 125x Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Europe 125x Strategy 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 Europe 125x. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Europe 125x Strategy has no effect on the direction of Basic Materials i.e., Basic Materials and Europe 125x go up and down completely randomly.

Pair Corralation between Basic Materials and Europe 125x

Assuming the 90 days horizon Basic Materials Fund is expected to generate 1.63 times more return on investment than Europe 125x. However, Basic Materials is 1.63 times more volatile than Europe 125x Strategy. It trades about -0.03 of its potential returns per unit of risk. Europe 125x Strategy is currently generating about -0.11 per unit of risk. If you would invest  6,241  in Basic Materials Fund on September 26, 2024 and sell it today you would lose (897.00) from holding Basic Materials Fund or give up 14.37% of portfolio value over 90 days.

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

Basic Materials Fund  vs.  Europe 125x Strategy

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.

Europe 125x Strategy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Europe 125x Strategy 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 technical and 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.

Pair Trading with Basic Materials and Europe 125x

The main advantage of trading using opposite Basic Materials and Europe 125x positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials position performs unexpectedly, Europe 125x 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 Europe 125x will offset losses from the drop in Europe 125x's long position.

The idea behind Basic Materials Fund and Europe 125x Strategy 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.