Correlation Between Financial Services and Gold Portfolio

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

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

Diversification Opportunities for Financial Services and Gold Portfolio

-0.06

Correlation Coefficient

Financial Services  Gold Portfolio

Good diversification

The 3 months correlation between Financial and GOLD is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Financial Services Fund and Gold Portfolio Fidelity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold Portfolio Fidelity and Financial Services 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 Financial Services Fund are associated (or correlated) with Gold Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gold Portfolio Fidelity has no effect on the direction of Financial Services i.e., Financial Services and Gold Portfolio go up and down completely randomly.

Pair Corralation between Financial Services and Gold Portfolio

Assuming the 90 days horizon Financial Services Fund is expected to generate 0.6 times more return on investment than Gold Portfolio. However, Financial Services Fund is 1.68 times less risky than Gold Portfolio. It trades about -0.29 of its potential returns per unit of risk. Gold Portfolio Fidelity is currently generating about -0.19 per unit of risk. If you would invest  8,883  in Financial Services Fund on October 4, 2024 and sell it today you would lose (555.00) from holding Financial Services Fund or give up 6.25% of portfolio value over 90 days.

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

Financial Services Fund  vs.  Gold Portfolio Fidelity

Financial Services

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Services Fund are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. 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.

Gold Portfolio Fidelity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gold Portfolio Fidelity 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.

Pair Trading with Financial Services and Gold Portfolio

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

The idea behind Financial Services Fund and Gold Portfolio Fidelity 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.