Correlation Between Strengthening Dollar and Banking Fund

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

By analyzing existing cross correlation between Strengthening Dollar 2x and Banking Fund Class, you can compare the effects of market volatilities on Strengthening Dollar 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 Strengthening Dollar with a short position of Banking Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Strengthening Dollar and Banking Fund.

Diversification Opportunities for Strengthening Dollar and Banking Fund

0.81

Correlation Coefficient

Strengthening Dollar  Banking Fund

Very poor diversification

The 3 months correlation between Strengthening and Banking is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Strengthening Dollar 2x and Banking Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banking Fund Class and Strengthening Dollar 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 Strengthening Dollar 2x 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 Class has no effect on the direction of Strengthening Dollar i.e., Strengthening Dollar and Banking Fund go up and down completely randomly.

Pair Corralation between Strengthening Dollar and Banking Fund

Assuming the 90 days horizon Strengthening Dollar 2x is expected to generate 0.69 times more return on investment than Banking Fund. However, Strengthening Dollar 2x is 1.45 times less risky than Banking Fund. It trades about -0.03 of its potential returns per unit of risk. Banking Fund Class is currently generating about -0.37 per unit of risk. If you would invest  6,822  in Strengthening Dollar 2x on September 27, 2024 and sell it today you would lose (47.00) from holding Strengthening Dollar 2x or give up 0.69% of portfolio value over 90 days.

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

Strengthening Dollar 2x  vs.  Banking Fund Class

Strengthening Dollar

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Strengthening Dollar 2x are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Strengthening Dollar showed solid returns over the last few months and may actually be approaching a breakup point.

Banking Fund Class

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Banking Fund Class are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward-looking signals, 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 Strengthening Dollar and Banking Fund

The main advantage of trading using opposite Strengthening Dollar and Banking Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Strengthening Dollar 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 Strengthening Dollar 2x and Banking Fund Class 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.