Correlation Between Retailing Fund and Financial Services

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

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

Diversification Opportunities for Retailing Fund and Financial Services

0.41

Correlation Coefficient

Retailing Fund  Financial Services

Very weak diversification

The 3 months correlation between Retailing and Financial is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Retailing Fund Class and Financial Services Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Services and Retailing 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 Retailing Fund Class are associated (or correlated) with Financial Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Services has no effect on the direction of Retailing Fund i.e., Retailing Fund and Financial Services go up and down completely randomly.

Pair Corralation between Retailing Fund and Financial Services

Assuming the 90 days horizon Retailing Fund is expected to generate 2.2 times less return on investment than Financial Services. But when comparing it to its historical volatility, Retailing Fund Class is 1.28 times less risky than Financial Services. It trades about 0.04 of its potential returns per unit of risk. Financial Services Fund is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  6,708  in Financial Services Fund on October 8, 2024 and sell it today you would earn a total of  273.00  from holding Financial Services Fund or generate 4.07% return on investment over 90 days.

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

Retailing Fund Class  vs.  Financial Services Fund

Retailing Fund Class

Risk-Adjusted Performance

2 of 100

Weak

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

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.

Pair Trading with Retailing Fund and Financial Services

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

The idea behind Retailing Fund Class and Financial Services Fund 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..