Correlation Between Energy Basic and Balanced Fund

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

Diversification Opportunities for Energy Basic and Balanced Fund

0.52

Correlation Coefficient

Energy Basic  Balanced Fund

Very weak diversification

The 3 months correlation between Energy and Balanced is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Energy Basic Materials and Balanced Fund Institutional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Balanced Fund Instit 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 Balanced Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Balanced Fund Instit has no effect on the direction of Energy Basic i.e., Energy Basic and Balanced Fund go up and down completely randomly.

Pair Corralation between Energy Basic and Balanced Fund

Assuming the 90 days horizon Energy Basic is expected to generate 1.77 times less return on investment than Balanced Fund. In addition to that, Energy Basic is 2.03 times more volatile than Balanced Fund Institutional. It trades about 0.05 of its total potential returns per unit of risk. Balanced Fund Institutional is currently generating about 0.18 per unit of volatility. If you would invest  1,994  in Balanced Fund Institutional on September 1, 2024 and sell it today you would earn a total of  103.00  from holding Balanced Fund Institutional or generate 5.17% return on investment over 90 days.

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

Energy Basic Materials  vs.  Balanced Fund Institutional

Energy Basic Materials

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Basic Materials are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental drivers, Energy Basic is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Balanced Fund Instit

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Balanced Fund Institutional are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Balanced 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 Energy Basic and Balanced Fund

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

The idea behind Energy Basic Materials and Balanced Fund Institutional 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.