Correlation Between Technology Fund and Electronics Fund

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

Diversification Opportunities for Technology Fund and Electronics Fund

0.36

Correlation Coefficient

Technology Fund  Electronics Fund

Weak diversification

The 3 months correlation between TECHNOLOGY and Electronics is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Technology Fund Investor and Electronics Fund Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electronics Fund Investor 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 Electronics Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electronics Fund Investor has no effect on the direction of Technology Fund i.e., Technology Fund and Electronics Fund go up and down completely randomly.

Pair Corralation between Technology Fund and Electronics Fund

Assuming the 90 days horizon Technology Fund is expected to generate 1.16 times less return on investment than Electronics Fund. But when comparing it to its historical volatility, Technology Fund Investor is 1.39 times less risky than Electronics Fund. It trades about 0.04 of its potential returns per unit of risk. Electronics Fund Investor is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  41,439  in Electronics Fund Investor on November 20, 2024 and sell it today you would earn a total of  1,281  from holding Electronics Fund Investor or generate 3.09% return on investment over 90 days.

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

Technology Fund Investor  vs.  Electronics Fund Investor

Technology Fund Investor

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Technology 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, Technology Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Electronics Fund Investor

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Electronics Fund Investor are ranked lower than 2 (%) 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.

Pair Trading with Technology Fund and Electronics Fund

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

The idea behind Technology Fund Investor and Electronics 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.

Check out your portfolio center.

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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.