Correlation Between Energy Basic and Simt Real

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

Diversification Opportunities for Energy Basic and Simt Real

0.81

Correlation Coefficient

Energy Basic  Simt Real

Very poor diversification

The 3 months correlation between Energy and Simt is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Energy Basic Materials and Simt Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Simt Real Estate 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 Simt Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Simt Real Estate has no effect on the direction of Energy Basic i.e., Energy Basic and Simt Real go up and down completely randomly.

Pair Corralation between Energy Basic and Simt Real

Assuming the 90 days horizon Energy Basic Materials is expected to generate 0.77 times more return on investment than Simt Real. However, Energy Basic Materials is 1.3 times less risky than Simt Real. It trades about -0.04 of its potential returns per unit of risk. Simt Real Estate is currently generating about -0.08 per unit of risk. If you would invest  1,264  in Energy Basic Materials on October 20, 2024 and sell it today you would lose (31.00) from holding Energy Basic Materials or give up 2.45% of portfolio value over 90 days.

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

Energy Basic Materials  vs.  Simt Real Estate

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 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.

Simt Real Estate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Simt Real Estate has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Simt Real 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 Simt Real

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

The idea behind Energy Basic Materials and Simt Real Estate 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.