Correlation Between United States and Energy

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

By analyzing existing cross correlation between United States Steel and Energy and Environmental, you can compare the effects of market volatilities on United States and 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 United States with a short position of Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of United States and Energy.

Diversification Opportunities for United States and Energy

-0.06

Correlation Coefficient

United States  Energy

Good diversification

The 3 months correlation between United and Energy is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel and Energy and Environmental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy and Environmental and United States 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 United States Steel are associated (or correlated) with Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy and Environmental has no effect on the direction of United States i.e., United States and Energy go up and down completely randomly.

Pair Corralation between United States and Energy

Taking into account the 90-day investment horizon United States Steel is expected to under-perform the Energy. But the stock apears to be less risky and, when comparing its historical volatility, United States Steel is 2.14 times less risky than Energy. The stock trades about -0.01 of its potential returns per unit of risk. The Energy and Environmental is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  9.00  in Energy and Environmental on October 9, 2024 and sell it today you would lose (2.00) from holding Energy and Environmental or give up 22.22% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.39%
Values	Daily Returns

United States Steel  vs.  Energy and Environmental

United States Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United States Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, United States is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Energy and Environmental

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Energy and Environmental are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal basic indicators, Energy may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with United States and Energy

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

The idea behind United States Steel and Energy and Environmental 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.