Correlation Between Main Sector and Main Thematic

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

By analyzing existing cross correlation between Main Sector Rotation and Main Thematic Innovation, you can compare the effects of market volatilities on Main Sector and Main Thematic 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 Main Sector with a short position of Main Thematic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Main Sector and Main Thematic.

Diversification Opportunities for Main Sector and Main Thematic

0.97

Correlation Coefficient

Main Sector  Main Thematic

Almost no diversification

The 3 months correlation between Main and Main is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Main Sector Rotation and Main Thematic Innovation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Main Thematic Innovation and Main Sector 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 Main Sector Rotation are associated (or correlated) with Main Thematic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Main Thematic Innovation has no effect on the direction of Main Sector i.e., Main Sector and Main Thematic go up and down completely randomly.

Pair Corralation between Main Sector and Main Thematic

Given the investment horizon of 90 days Main Sector Rotation is expected to generate 0.5 times more return on investment than Main Thematic. However, Main Sector Rotation is 2.0 times less risky than Main Thematic. It trades about -0.07 of its potential returns per unit of risk. Main Thematic Innovation is currently generating about -0.06 per unit of risk. If you would invest  5,655  in Main Sector Rotation on December 26, 2024 and sell it today you would lose (313.00) from holding Main Sector Rotation or give up 5.53% of portfolio value over 90 days.

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

Main Sector Rotation  vs.  Main Thematic Innovation

Main Sector Rotation

Risk-Adjusted Performance

Very Weak

Over the last 90 days Main Sector Rotation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Main Sector is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Main Thematic Innovation

Risk-Adjusted Performance

Very Weak

Over the last 90 days Main Thematic Innovation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the exchange-traded fund private investors.

Pair Trading with Main Sector and Main Thematic

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

The idea behind Main Sector Rotation and Main Thematic Innovation 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.