Correlation Between Financial Services and Biotechnology Fund

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

Diversification Opportunities for Financial Services and Biotechnology Fund

0.58

Correlation Coefficient

Financial Services  Biotechnology Fund

Very weak diversification

The 3 months correlation between Financial and Biotechnology is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Financial Services Fund and Biotechnology Fund Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biotechnology Fund 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 Biotechnology Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biotechnology Fund has no effect on the direction of Financial Services i.e., Financial Services and Biotechnology Fund go up and down completely randomly.

Pair Corralation between Financial Services and Biotechnology Fund

Assuming the 90 days horizon Financial Services Fund is expected to generate 0.5 times more return on investment than Biotechnology Fund. However, Financial Services Fund is 2.0 times less risky than Biotechnology Fund. It trades about -0.06 of its potential returns per unit of risk. Biotechnology Fund Investor is currently generating about -0.12 per unit of risk. If you would invest  10,160  in Financial Services Fund on December 5, 2024 and sell it today you would lose (413.00) from holding Financial Services Fund or give up 4.06% of portfolio value over 90 days.

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

Financial Services Fund  vs.  Biotechnology Fund Investor

Financial Services

Risk-Adjusted Performance

Very Weak

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

Biotechnology Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days Biotechnology Fund Investor has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Financial Services and Biotechnology Fund

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

The idea behind Financial Services Fund and Biotechnology Fund Investor 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.

Check out your portfolio center.

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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.