Correlation Between Consumer Products and Inverse Government

Can any of the company-specific risk be diversified away by investing in both Consumer Products and Inverse Government 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 Inverse Government 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 Inverse Government Long, you can compare the effects of market volatilities on Consumer Products and Inverse Government 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 Inverse Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consumer Products and Inverse Government.

Diversification Opportunities for Consumer Products and Inverse Government

-0.12

Correlation Coefficient

Consumer Products  Inverse Government

Good diversification

The 3 months correlation between Consumer and Inverse is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Products Fund and Inverse Government Long in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Government Long 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 Inverse Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Government Long has no effect on the direction of Consumer Products i.e., Consumer Products and Inverse Government go up and down completely randomly.

Pair Corralation between Consumer Products and Inverse Government

Assuming the 90 days horizon Consumer Products Fund is expected to generate 50.58 times more return on investment than Inverse Government. However, Consumer Products is 50.58 times more volatile than Inverse Government Long. It trades about 0.15 of its potential returns per unit of risk. Inverse Government Long is currently generating about 0.12 per unit of risk. If you would invest  3,213  in Consumer Products Fund on November 28, 2024 and sell it today you would earn a total of  5,469  from holding Consumer Products Fund or generate 170.21% return on investment over 90 days.

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

Consumer Products Fund  vs.  Inverse Government Long

Consumer Products

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Consumer Products Fund are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Consumer Products showed solid returns over the last few months and may actually be approaching a breakup point.

Inverse Government Long

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Inverse Government Long are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Inverse Government is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Consumer Products and Inverse Government

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

The idea behind Consumer Products Fund and Inverse Government Long 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.

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.