Correlation Between Financial Services and Pabrai Wagons

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

Diversification Opportunities for Financial Services and Pabrai Wagons

0.82

Correlation Coefficient

Financial Services  Pabrai Wagons

Very poor diversification

The 3 months correlation between Financial and Pabrai is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Financial Services Fund and Pabrai Wagons Institutional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pabrai Wagons Instit 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 Pabrai Wagons. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pabrai Wagons Instit has no effect on the direction of Financial Services i.e., Financial Services and Pabrai Wagons go up and down completely randomly.

Pair Corralation between Financial Services and Pabrai Wagons

Assuming the 90 days horizon Financial Services Fund is expected to generate 1.02 times more return on investment than Pabrai Wagons. However, Financial Services is 1.02 times more volatile than Pabrai Wagons Institutional. It trades about 0.14 of its potential returns per unit of risk. Pabrai Wagons Institutional is currently generating about -0.15 per unit of risk. If you would invest  7,042  in Financial Services Fund on October 26, 2024 and sell it today you would earn a total of  185.00  from holding Financial Services Fund or generate 2.63% return on investment over 90 days.

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

Financial Services Fund  vs.  Pabrai Wagons Institutional

Financial Services

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Services Fund are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Financial Services is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pabrai Wagons Instit

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pabrai Wagons Institutional are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Pabrai Wagons is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Financial Services and Pabrai Wagons

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

The idea behind Financial Services Fund and Pabrai Wagons Institutional 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.