Correlation Between Basic Materials and Guggenheim Alpha

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

Diversification Opportunities for Basic Materials and Guggenheim Alpha

0.77

Correlation Coefficient

Basic Materials  Guggenheim Alpha

Poor diversification

The 3 months correlation between Basic and Guggenheim is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials Fund and Guggenheim Alpha Opportunity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guggenheim Alpha Opp 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 Guggenheim Alpha. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guggenheim Alpha Opp has no effect on the direction of Basic Materials i.e., Basic Materials and Guggenheim Alpha go up and down completely randomly.

Pair Corralation between Basic Materials and Guggenheim Alpha

Assuming the 90 days horizon Basic Materials Fund is expected to under-perform the Guggenheim Alpha. In addition to that, Basic Materials is 2.73 times more volatile than Guggenheim Alpha Opportunity. It trades about -0.13 of its total potential returns per unit of risk. Guggenheim Alpha Opportunity is currently generating about 0.01 per unit of volatility. If you would invest  2,183  in Guggenheim Alpha Opportunity on December 2, 2024 and sell it today you would earn a total of  8.00  from holding Guggenheim Alpha Opportunity or generate 0.37% return on investment over 90 days.

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

Basic Materials Fund  vs.  Guggenheim Alpha Opportunity

Basic Materials

Risk-Adjusted Performance

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

Guggenheim Alpha Opp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Guggenheim Alpha Opportunity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Guggenheim Alpha 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 Guggenheim Alpha

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

The idea behind Basic Materials Fund and Guggenheim Alpha Opportunity 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.