Correlation Between Energy Basic and Destinations Small

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

By analyzing existing cross correlation between Energy Basic Materials and Destinations Small Mid Cap, you can compare the effects of market volatilities on Energy Basic and Destinations Small 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 Energy Basic with a short position of Destinations Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Basic and Destinations Small.

Diversification Opportunities for Energy Basic and Destinations Small

0.53

Correlation Coefficient

Energy Basic  Destinations Small

Very weak diversification

The 3 months correlation between Energy and Destinations is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Energy Basic Materials and Destinations Small Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Destinations Small Mid and Energy Basic 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 Energy Basic Materials are associated (or correlated) with Destinations Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Destinations Small Mid has no effect on the direction of Energy Basic i.e., Energy Basic and Destinations Small go up and down completely randomly.

Pair Corralation between Energy Basic and Destinations Small

Assuming the 90 days horizon Energy Basic Materials is expected to under-perform the Destinations Small. But the mutual fund apears to be less risky and, when comparing its historical volatility, Energy Basic Materials is 1.44 times less risky than Destinations Small. The mutual fund trades about -0.01 of its potential returns per unit of risk. The Destinations Small Mid Cap is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  879.00  in Destinations Small Mid Cap on October 5, 2024 and sell it today you would earn a total of  84.00  from holding Destinations Small Mid Cap or generate 9.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.63%
Values	Daily Returns

Energy Basic Materials  vs.  Destinations Small Mid Cap

Energy Basic Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Energy Basic Materials 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 fundamental drivers remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Destinations Small Mid

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Destinations Small Mid Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Energy Basic and Destinations Small

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

The idea behind Energy Basic Materials and Destinations Small Mid Cap 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.