Correlation Between Utilities Select and SPACE

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

By analyzing existing cross correlation between Utilities Select Sector and SPACE, you can compare the effects of market volatilities on Utilities Select and SPACE 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 Utilities Select with a short position of SPACE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Utilities Select and SPACE.

Diversification Opportunities for Utilities Select and SPACE

0.25

Correlation Coefficient

Utilities Select  SPACE

Modest diversification

The 3 months correlation between Utilities and SPACE is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Utilities Select Sector and SPACE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPACE and Utilities Select 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 Utilities Select Sector are associated (or correlated) with SPACE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPACE has no effect on the direction of Utilities Select i.e., Utilities Select and SPACE go up and down completely randomly.

Pair Corralation between Utilities Select and SPACE

Considering the 90-day investment horizon Utilities Select is expected to generate 53.03 times less return on investment than SPACE. But when comparing it to its historical volatility, Utilities Select Sector is 6.52 times less risky than SPACE. It trades about 0.01 of its potential returns per unit of risk. SPACE is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  41.00  in SPACE on October 7, 2024 and sell it today you would earn a total of  6.00  from holding SPACE or generate 14.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.35%
Values	Daily Returns

Utilities Select Sector  vs.  SPACE

Utilities Select Sector

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Utilities Select Sector has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, Utilities Select is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

SPACE

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPACE are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, SPACE exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Utilities Select and SPACE

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

The idea behind Utilities Select Sector and SPACE 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.