Correlation Between Technology Fund and Global Technology

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

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

Diversification Opportunities for Technology Fund and Global Technology

0.86

Correlation Coefficient

Technology Fund  Global Technology

Very poor diversification

The 3 months correlation between Technology and Global is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Technology Fund Class and Global Technology Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Technology and Technology 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 Technology Fund Class are associated (or correlated) with Global Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Technology has no effect on the direction of Technology Fund i.e., Technology Fund and Global Technology go up and down completely randomly.

Pair Corralation between Technology Fund and Global Technology

Assuming the 90 days horizon Technology Fund is expected to generate 1.66 times less return on investment than Global Technology. In addition to that, Technology Fund is 1.29 times more volatile than Global Technology Portfolio. It trades about 0.03 of its total potential returns per unit of risk. Global Technology Portfolio is currently generating about 0.06 per unit of volatility. If you would invest  2,069  in Global Technology Portfolio on October 8, 2024 and sell it today you would earn a total of  83.00  from holding Global Technology Portfolio or generate 4.01% return on investment over 90 days.

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

Technology Fund Class  vs.  Global Technology Portfolio

Technology Fund Class

Risk-Adjusted Performance

2 of 100

Weak

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

Global Technology

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Global Technology Portfolio are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Global Technology is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Technology Fund and Global Technology

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

The idea behind Technology Fund Class and Global Technology Portfolio 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.