Correlation Between Energy Basic and Dimensional Retirement

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

Diversification Opportunities for Energy Basic and Dimensional Retirement

0.24

Correlation Coefficient

Energy Basic  Dimensional Retirement

Modest diversification

The 3 months correlation between Energy and Dimensional is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Energy Basic Materials and Dimensional Retirement Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dimensional Retirement 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 Dimensional Retirement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dimensional Retirement has no effect on the direction of Energy Basic i.e., Energy Basic and Dimensional Retirement go up and down completely randomly.

Pair Corralation between Energy Basic and Dimensional Retirement

Assuming the 90 days horizon Energy Basic Materials is expected to generate 4.1 times more return on investment than Dimensional Retirement. However, Energy Basic is 4.1 times more volatile than Dimensional Retirement Income. It trades about 0.22 of its potential returns per unit of risk. Dimensional Retirement Income is currently generating about -0.2 per unit of risk. If you would invest  1,161  in Energy Basic Materials on December 31, 2024 and sell it today you would earn a total of  50.00  from holding Energy Basic Materials or generate 4.31% return on investment over 90 days.

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

Energy Basic Materials  vs.  Dimensional Retirement Income

Energy Basic Materials

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Basic Materials are ranked lower than 6 (%) 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.

Dimensional Retirement

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dimensional Retirement Income are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Dimensional Retirement 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 Dimensional Retirement

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

The idea behind Energy Basic Materials and Dimensional Retirement Income 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.