Correlation Between Science Technology and New World

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

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

Diversification Opportunities for Science Technology and New World

-0.54

Correlation Coefficient

Science Technology  New World

Excellent diversification

The 3 months correlation between Science and New is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Science Technology Fund and New World Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New World Fund and Science Technology 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 Science Technology Fund are associated (or correlated) with New World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New World Fund has no effect on the direction of Science Technology i.e., Science Technology and New World go up and down completely randomly.

Pair Corralation between Science Technology and New World

Assuming the 90 days horizon Science Technology Fund is expected to generate 1.57 times more return on investment than New World. However, Science Technology is 1.57 times more volatile than New World Fund. It trades about -0.12 of its potential returns per unit of risk. New World Fund is currently generating about -0.29 per unit of risk. If you would invest  3,037  in Science Technology Fund on October 7, 2024 and sell it today you would lose (112.00) from holding Science Technology Fund or give up 3.69% of portfolio value over 90 days.

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

Science Technology Fund  vs.  New World Fund

Science Technology

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Science Technology Fund are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Science Technology may actually be approaching a critical reversion point that can send shares even higher in February 2025.

New World Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New World Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's 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 Science Technology and New World

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

The idea behind Science Technology Fund and New World 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.