Correlation Between Transportation Fund and Utilities Fund

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

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

Diversification Opportunities for Transportation Fund and Utilities Fund

0.16

Correlation Coefficient

Transportation Fund  Utilities Fund

Average diversification

The 3 months correlation between Transportation and Utilities is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Transportation Fund Investor and Utilities Fund Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Utilities Fund Investor and Transportation 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 Transportation Fund Investor are associated (or correlated) with Utilities Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Utilities Fund Investor has no effect on the direction of Transportation Fund i.e., Transportation Fund and Utilities Fund go up and down completely randomly.

Pair Corralation between Transportation Fund and Utilities Fund

Assuming the 90 days horizon Transportation Fund Investor is expected to generate 1.54 times more return on investment than Utilities Fund. However, Transportation Fund is 1.54 times more volatile than Utilities Fund Investor. It trades about -0.06 of its potential returns per unit of risk. Utilities Fund Investor is currently generating about -0.32 per unit of risk. If you would invest  6,361  in Transportation Fund Investor on October 6, 2024 and sell it today you would lose (117.00) from holding Transportation Fund Investor or give up 1.84% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Transportation Fund Investor  vs.  Utilities Fund Investor

Transportation Fund

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Transportation Fund Investor are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Transportation Fund may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Utilities Fund Investor

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Transportation Fund and Utilities Fund

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

The idea behind Transportation Fund Investor and Utilities 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.