Correlation Between Electronics Fund and Biotechnology Fund

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

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

Diversification Opportunities for Electronics Fund and Biotechnology Fund

0.24

Correlation Coefficient

Electronics Fund  Biotechnology Fund

Modest diversification

The 3 months correlation between Electronics and Biotechnology is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Electronics Fund Investor and Biotechnology Fund Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biotechnology Fund and Electronics 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 Electronics Fund Investor are associated (or correlated) with Biotechnology Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biotechnology Fund has no effect on the direction of Electronics Fund i.e., Electronics Fund and Biotechnology Fund go up and down completely randomly.

Pair Corralation between Electronics Fund and Biotechnology Fund

Assuming the 90 days horizon Electronics Fund Investor is expected to generate 0.62 times more return on investment than Biotechnology Fund. However, Electronics Fund Investor is 1.61 times less risky than Biotechnology Fund. It trades about 0.05 of its potential returns per unit of risk. Biotechnology Fund Investor is currently generating about -0.01 per unit of risk. If you would invest  41,605  in Electronics Fund Investor on September 18, 2024 and sell it today you would earn a total of  1,910  from holding Electronics Fund Investor or generate 4.59% return on investment over 90 days.

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

Electronics Fund Investor  vs.  Biotechnology Fund Investor

Electronics Fund Investor

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Electronics Fund Investor are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Electronics Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Biotechnology Fund

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Electronics Fund Investor and Biotechnology 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.