Correlation Between Energy Fund and World Energy

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

Diversification Opportunities for Energy Fund and World Energy

0.74

Correlation Coefficient

Energy Fund  World Energy

Poor diversification

The 3 months correlation between Energy and World is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Energy Fund Class and World Energy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on World Energy 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 World Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of World Energy has no effect on the direction of Energy Fund i.e., Energy Fund and World Energy go up and down completely randomly.

Pair Corralation between Energy Fund and World Energy

Assuming the 90 days horizon Energy Fund Class is expected to under-perform the World Energy. In addition to that, Energy Fund is 1.29 times more volatile than World Energy Fund. It trades about -0.3 of its total potential returns per unit of risk. World Energy Fund is currently generating about -0.07 per unit of volatility. If you would invest  1,497  in World Energy Fund on September 17, 2024 and sell it today you would lose (23.00) from holding World Energy Fund or give up 1.54% of portfolio value over 90 days.

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

Energy Fund Class  vs.  World Energy Fund

Energy Fund Class

Risk-Adjusted Performance

0 of 100

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 fairly strong basic indicators, Energy Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

World Energy

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in World Energy Fund are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, World Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Energy Fund and World Energy

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

The idea behind Energy Fund Class and World Energy 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.