Correlation Between Consumer Products and Consumer Staples

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

By analyzing existing cross correlation between Consumer Products Fund and Consumer Staples Portfolio, you can compare the effects of market volatilities on Consumer Products and Consumer Staples 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 Consumer Products with a short position of Consumer Staples. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consumer Products and Consumer Staples.

Diversification Opportunities for Consumer Products and Consumer Staples

0.78

Correlation Coefficient

Consumer Products  Consumer Staples

Poor diversification

The 3 months correlation between Consumer and Consumer is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Products Fund and Consumer Staples Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumer Staples Por and Consumer Products 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 Consumer Products Fund are associated (or correlated) with Consumer Staples. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumer Staples Por has no effect on the direction of Consumer Products i.e., Consumer Products and Consumer Staples go up and down completely randomly.

Pair Corralation between Consumer Products and Consumer Staples

Assuming the 90 days horizon Consumer Products Fund is expected to under-perform the Consumer Staples. But the mutual fund apears to be less risky and, when comparing its historical volatility, Consumer Products Fund is 1.02 times less risky than Consumer Staples. The mutual fund trades about -0.47 of its potential returns per unit of risk. The Consumer Staples Portfolio is currently generating about -0.44 of returns per unit of risk over similar time horizon. If you would invest  9,879  in Consumer Staples Portfolio on October 9, 2024 and sell it today you would lose (1,089) from holding Consumer Staples Portfolio or give up 11.02% of portfolio value over 90 days.

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

Consumer Products Fund  vs.  Consumer Staples Portfolio

Consumer Products

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Consumer Products Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Consumer Staples Por

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Consumer Staples Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Consumer Products and Consumer Staples

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

The idea behind Consumer Products Fund and Consumer Staples Portfolio 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.