Correlation Between Basic Materials and Inverse Sp
Can any of the company-specific risk be diversified away by investing in both Basic Materials and Inverse Sp 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 Inverse Sp 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 Inverse Sp 500, you can compare the effects of market volatilities on Basic Materials and Inverse Sp 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 Inverse Sp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and Inverse Sp.
Diversification Opportunities for Basic Materials and Inverse Sp
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Basic and Inverse is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials Fund and Inverse Sp 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Sp 500 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 Inverse Sp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Sp 500 has no effect on the direction of Basic Materials i.e., Basic Materials and Inverse Sp go up and down completely randomly.
Pair Corralation between Basic Materials and Inverse Sp
Assuming the 90 days horizon Basic Materials Fund is expected to under-perform the Inverse Sp. In addition to that, Basic Materials is 2.2 times more volatile than Inverse Sp 500. It trades about -0.17 of its total potential returns per unit of risk. Inverse Sp 500 is currently generating about -0.13 per unit of volatility. If you would invest 1,826 in Inverse Sp 500 on September 27, 2024 and sell it today you would lose (120.00) from holding Inverse Sp 500 or give up 6.57% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Basic Materials Fund vs. Inverse Sp 500
Performance |
Timeline |
Basic Materials |
Inverse Sp 500 |
Basic Materials and Inverse Sp Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Basic Materials and Inverse Sp
The main advantage of trading using opposite Basic Materials and Inverse Sp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials position performs unexpectedly, Inverse Sp 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 Inverse Sp will offset losses from the drop in Inverse Sp's long position.Basic Materials vs. Basic Materials Fund | Basic Materials vs. Energy Services Fund | Basic Materials vs. Energy Fund Class | Basic Materials vs. Nasdaq 100 2x Strategy |
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Check out your portfolio center.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.
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