Correlation Between Financial Services and Automotive Portfolio

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

Diversification Opportunities for Financial Services and Automotive Portfolio

0.87

Correlation Coefficient

Financial Services  Automotive Portfolio

Very poor diversification

The 3 months correlation between Financial and Automotive is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Financial Services Fund and Automotive Portfolio Automotiv in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Automotive Portfolio 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 Automotive Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Automotive Portfolio has no effect on the direction of Financial Services i.e., Financial Services and Automotive Portfolio go up and down completely randomly.

Pair Corralation between Financial Services and Automotive Portfolio

Assuming the 90 days horizon Financial Services Fund is expected to generate 0.81 times more return on investment than Automotive Portfolio. However, Financial Services Fund is 1.23 times less risky than Automotive Portfolio. It trades about 0.22 of its potential returns per unit of risk. Automotive Portfolio Automotive is currently generating about 0.12 per unit of risk. If you would invest  9,154  in Financial Services Fund on September 3, 2024 and sell it today you would earn a total of  1,255  from holding Financial Services Fund or generate 13.71% 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.  Automotive Portfolio Automotiv

Financial Services

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Services Fund are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Financial Services showed solid returns over the last few months and may actually be approaching a breakup point.

Automotive Portfolio

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Automotive Portfolio Automotive are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Automotive Portfolio may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Financial Services and Automotive Portfolio

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

The idea behind Financial Services Fund and Automotive Portfolio Automotive 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.