Correlation Between Transportation Fund and Financial Services

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

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

Diversification Opportunities for Transportation Fund and Financial Services

0.27

Correlation Coefficient

Transportation Fund  Financial Services

Modest diversification

The 3 months correlation between Transportation and Financial is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Transportation Fund Class and Financial Services Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Services and Transportation Fund 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 Transportation Fund Class are associated (or correlated) with Financial Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Services has no effect on the direction of Transportation Fund i.e., Transportation Fund and Financial Services go up and down completely randomly.

Pair Corralation between Transportation Fund and Financial Services

Assuming the 90 days horizon Transportation Fund Class is expected to under-perform the Financial Services. In addition to that, Transportation Fund is 1.22 times more volatile than Financial Services Fund. It trades about -0.35 of its total potential returns per unit of risk. Financial Services Fund is currently generating about -0.32 per unit of volatility. If you would invest  8,771  in Financial Services Fund on December 10, 2024 and sell it today you would lose (653.00) from holding Financial Services Fund or give up 7.44% of portfolio value over 90 days.

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

Transportation Fund Class  vs.  Financial Services Fund

Transportation Fund Class

Risk-Adjusted Performance

Very Weak

Over the last 90 days Transportation Fund Class 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 basic 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.

Financial Services

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Transportation Fund and Financial Services

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

The idea behind Transportation Fund Class and Financial Services Fund 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.