Correlation Between Retailing Fund and Banking Fund

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

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

Diversification Opportunities for Retailing Fund and Banking Fund

0.93

Correlation Coefficient

Retailing Fund  Banking Fund

Almost no diversification

The 3 months correlation between Retailing and Banking is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Retailing Fund Investor and Banking Fund Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banking Fund Investor 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 Investor are associated (or correlated) with Banking Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banking Fund Investor has no effect on the direction of Retailing Fund i.e., Retailing Fund and Banking Fund go up and down completely randomly.

Pair Corralation between Retailing Fund and Banking Fund

Assuming the 90 days horizon Retailing Fund Investor is expected to under-perform the Banking Fund. But the mutual fund apears to be less risky and, when comparing its historical volatility, Retailing Fund Investor is 1.15 times less risky than Banking Fund. The mutual fund trades about -0.07 of its potential returns per unit of risk. The Banking Fund Investor is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  10,138  in Banking Fund Investor on December 30, 2024 and sell it today you would lose (392.00) from holding Banking Fund Investor or give up 3.87% of portfolio value over 90 days.

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

Retailing Fund Investor  vs.  Banking Fund Investor

Retailing Fund Investor

Risk-Adjusted Performance

Very Weak

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

Banking Fund Investor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Banking Fund Investor has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Banking 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 Retailing Fund and Banking Fund

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

The idea behind Retailing Fund Investor and Banking 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.