Correlation Between Energy Basic and Global Resources

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

Diversification Opportunities for Energy Basic and Global Resources

0.95

Correlation Coefficient

Energy Basic  Global Resources

Almost no diversification

The 3 months correlation between Energy and Global is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Energy Basic Materials and Global Resources Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Resources 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 Global Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Resources has no effect on the direction of Energy Basic i.e., Energy Basic and Global Resources go up and down completely randomly.

Pair Corralation between Energy Basic and Global Resources

Assuming the 90 days horizon Energy Basic Materials is expected to under-perform the Global Resources. But the mutual fund apears to be less risky and, when comparing its historical volatility, Energy Basic Materials is 1.28 times less risky than Global Resources. The mutual fund trades about -0.18 of its potential returns per unit of risk. The Global Resources Fund is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  388.00  in Global Resources Fund on October 11, 2024 and sell it today you would lose (9.00) from holding Global Resources Fund or give up 2.32% of portfolio value over 90 days.

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

Energy Basic Materials  vs.  Global Resources Fund

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 latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Global Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global Resources Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Energy Basic and Global Resources

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

The idea behind Energy Basic Materials and Global Resources 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.