Correlation Between Energy Fund and Global Resources

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

By analyzing existing cross correlation between Energy Fund Investor and Global Resources Fund, you can compare the effects of market volatilities on Energy Fund and Global Resources 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 Global Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Fund and Global Resources.

Diversification Opportunities for Energy Fund and Global Resources

0.48

Correlation Coefficient

Energy Fund  Global Resources

Very weak diversification

The 3 months correlation between Energy and Global is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Energy Fund Investor and Global Resources Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Resources 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 Investor are associated (or correlated) with Global Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Resources has no effect on the direction of Energy Fund i.e., Energy Fund and Global Resources go up and down completely randomly.

Pair Corralation between Energy Fund and Global Resources

Assuming the 90 days horizon Energy Fund Investor is expected to generate 1.09 times more return on investment than Global Resources. However, Energy Fund is 1.09 times more volatile than Global Resources Fund. It trades about -0.02 of its potential returns per unit of risk. Global Resources Fund is currently generating about -0.09 per unit of risk. If you would invest  27,039  in Energy Fund Investor on October 26, 2024 and sell it today you would lose (352.00) from holding Energy Fund Investor or give up 1.3% of portfolio value over 90 days.

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

Energy Fund Investor  vs.  Global Resources Fund

Energy Fund Investor

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Fund Investor are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Energy Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Global Resources

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Energy Fund and Global Resources

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

The idea behind Energy Fund Investor and Global Resources 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.