Correlation Between Energy Fund and Energy Services

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

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

Diversification Opportunities for Energy Fund and Energy Services

0.95

Correlation Coefficient

Energy Fund  Energy Services

Almost no diversification

The 3 months correlation between ENERGY and Energy is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Energy Fund Class and Energy Services Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Services and Energy 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 Energy Fund Class are associated (or correlated) with Energy Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Services has no effect on the direction of Energy Fund i.e., Energy Fund and Energy Services go up and down completely randomly.

Pair Corralation between Energy Fund and Energy Services

Assuming the 90 days horizon Energy Fund Class is expected to generate 0.8 times more return on investment than Energy Services. However, Energy Fund Class is 1.24 times less risky than Energy Services. It trades about -0.11 of its potential returns per unit of risk. Energy Services Fund is currently generating about -0.14 per unit of risk. If you would invest  20,223  in Energy Fund Class on November 29, 2024 and sell it today you would lose (1,662) from holding Energy Fund Class or give up 8.22% of portfolio value over 90 days.

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

Energy Fund Class  vs.  Energy Services Fund

Energy Fund Class

Risk-Adjusted Performance

Very Weak

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

Energy Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days Energy Services 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 basic indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Energy Fund and Energy Services

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

The idea behind Energy Fund Class and Energy 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.

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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.