Correlation Between Sentinel Small and World Energy

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

By analyzing existing cross correlation between Sentinel Small Pany and World Energy Fund, you can compare the effects of market volatilities on Sentinel Small and World Energy 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 Sentinel Small with a short position of World Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sentinel Small and World Energy.

Diversification Opportunities for Sentinel Small and World Energy

0.78

Correlation Coefficient

Sentinel Small  World Energy

Poor diversification

The 3 months correlation between Sentinel and World is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Sentinel Small Pany and World Energy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on World Energy and Sentinel Small 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 Sentinel Small Pany are associated (or correlated) with World Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of World Energy has no effect on the direction of Sentinel Small i.e., Sentinel Small and World Energy go up and down completely randomly.

Pair Corralation between Sentinel Small and World Energy

Assuming the 90 days horizon Sentinel Small Pany is expected to under-perform the World Energy. But the mutual fund apears to be less risky and, when comparing its historical volatility, Sentinel Small Pany is 1.56 times less risky than World Energy. The mutual fund trades about -0.07 of its potential returns per unit of risk. The World Energy Fund is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,449  in World Energy Fund on December 28, 2024 and sell it today you would lose (4.00) from holding World Energy Fund or give up 0.28% of portfolio value over 90 days.

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

Sentinel Small Pany  vs.  World Energy Fund

Sentinel Small Pany

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sentinel Small Pany has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Sentinel Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

World Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days World Energy Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, World Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sentinel Small and World Energy

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

The idea behind Sentinel Small Pany and World Energy 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.