Correlation Between Electronics Fund and Energy Services

Can any of the company-specific risk be diversified away by investing in both Electronics Fund and Energy 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 Electronics Fund and Energy Services 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 Energy Services Fund, you can compare the effects of market volatilities on Electronics Fund and Energy 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 Electronics Fund with a short position of Energy Services. Check out your portfolio center. Please also check ongoing floating volatility patterns of Electronics Fund and Energy Services.

Diversification Opportunities for Electronics Fund and Energy Services

0.89

Correlation Coefficient

Electronics Fund  Energy Services

Very poor diversification

The 3 months correlation between Electronics and Energy is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Electronics Fund Investor and Energy Services Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Services 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 Energy Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Services has no effect on the direction of Electronics Fund i.e., Electronics Fund and Energy Services go up and down completely randomly.

Pair Corralation between Electronics Fund and Energy Services

Assuming the 90 days horizon Electronics Fund Investor is expected to under-perform the Energy Services. In addition to that, Electronics Fund is 1.48 times more volatile than Energy Services Fund. It trades about -0.1 of its total potential returns per unit of risk. Energy Services Fund is currently generating about -0.06 per unit of volatility. If you would invest  22,428  in Energy Services Fund on December 30, 2024 and sell it today you would lose (1,448) from holding Energy Services Fund or give up 6.46% of portfolio value over 90 days.

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

Electronics Fund Investor  vs.  Energy Services Fund

Electronics Fund Investor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Electronics Fund Investor has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Energy Services

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Electronics Fund Investor and Energy 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.