Correlation Between Energy Basic and New Perspective

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

Diversification Opportunities for Energy Basic and New Perspective

0.77

Correlation Coefficient

Energy Basic  New Perspective

Poor diversification

The 3 months correlation between ENERGY and New is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Energy Basic Materials and New Perspective Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Perspective 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 New Perspective. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Perspective has no effect on the direction of Energy Basic i.e., Energy Basic and New Perspective go up and down completely randomly.

Pair Corralation between Energy Basic and New Perspective

Assuming the 90 days horizon Energy Basic is expected to generate 2.04 times less return on investment than New Perspective. In addition to that, Energy Basic is 1.24 times more volatile than New Perspective Fund. It trades about 0.05 of its total potential returns per unit of risk. New Perspective Fund is currently generating about 0.14 per unit of volatility. If you would invest  6,181  in New Perspective Fund on September 4, 2024 and sell it today you would earn a total of  391.00  from holding New Perspective Fund or generate 6.33% return on investment over 90 days.

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

Energy Basic Materials  vs.  New Perspective Fund

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 indicators, Energy Basic is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

New Perspective

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in New Perspective Fund are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, New Perspective 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 New Perspective

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

The idea behind Energy Basic Materials and New Perspective Fund 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.