Correlation Between Technology Fund and Biotechnology Fund

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

Diversification Opportunities for Technology Fund and Biotechnology Fund

-0.3

Correlation Coefficient

Technology Fund  Biotechnology Fund

Very good diversification

The 3 months correlation between Technology and Biotechnology is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Technology 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 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 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 Technology Fund i.e., Technology Fund and Biotechnology Fund go up and down completely randomly.

Pair Corralation between Technology Fund and Biotechnology Fund

Assuming the 90 days horizon Technology Fund Investor is expected to generate 0.95 times more return on investment than Biotechnology Fund. However, Technology Fund Investor is 1.05 times less risky than Biotechnology Fund. It trades about 0.1 of its potential returns per unit of risk. Biotechnology Fund Investor is currently generating about 0.03 per unit of risk. If you would invest  11,493  in Technology Fund Investor on September 18, 2024 and sell it today you would earn a total of  10,206  from holding Technology Fund Investor or generate 88.8% return on investment over 90 days.

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

Technology Fund Investor  vs.  Biotechnology Fund Investor

Technology Fund Investor

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Technology Fund Investor are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Technology Fund may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 Technology Fund and Biotechnology Fund

The main advantage of trading using opposite Technology Fund and Biotechnology Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Technology 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 Technology 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.