Correlation Between Leisure Fund and Transportation Fund

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

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

Diversification Opportunities for Leisure Fund and Transportation Fund

0.31

Correlation Coefficient

Leisure Fund  Transportation Fund

Weak diversification

The 3 months correlation between Leisure and Transportation is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Leisure Fund Investor and Transportation Fund Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transportation Fund and Leisure 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 Leisure Fund Investor are associated (or correlated) with Transportation Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transportation Fund has no effect on the direction of Leisure Fund i.e., Leisure Fund and Transportation Fund go up and down completely randomly.

Pair Corralation between Leisure Fund and Transportation Fund

Assuming the 90 days horizon Leisure Fund Investor is expected to generate 0.8 times more return on investment than Transportation Fund. However, Leisure Fund Investor is 1.25 times less risky than Transportation Fund. It trades about -0.01 of its potential returns per unit of risk. Transportation Fund Investor is currently generating about -0.14 per unit of risk. If you would invest  9,422  in Leisure Fund Investor on December 26, 2024 and sell it today you would lose (92.00) from holding Leisure Fund Investor or give up 0.98% of portfolio value over 90 days.

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

Leisure Fund Investor  vs.  Transportation Fund Investor

Leisure Fund Investor

Risk-Adjusted Performance

Very Weak

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

Transportation Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days Transportation Fund Investor has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward 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 Leisure Fund and Transportation Fund

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

The idea behind Leisure Fund Investor and Transportation 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.

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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 Transaction History module to view history of all your transactions and understand their impact on performance.