Correlation Between Consumer Discretionary and Esoterica NextG

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

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

Diversification Opportunities for Consumer Discretionary and Esoterica NextG

0.78

Correlation Coefficient

Consumer Discretionary  Esoterica NextG

Poor diversification

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

Pair Corralation between Consumer Discretionary and Esoterica NextG

Considering the 90-day investment horizon Consumer Discretionary is expected to generate 1.58 times less return on investment than Esoterica NextG. But when comparing it to its historical volatility, Consumer Discretionary Select is 1.37 times less risky than Esoterica NextG. It trades about 0.1 of its potential returns per unit of risk. Esoterica NextG Economy is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,961  in Esoterica NextG Economy on September 26, 2024 and sell it today you would earn a total of  4,515  from holding Esoterica NextG Economy or generate 152.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Consumer Discretionary Select  vs.  Esoterica NextG Economy

Consumer Discretionary

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Consumer Discretionary Select are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, Consumer Discretionary showed solid returns over the last few months and may actually be approaching a breakup point.

Esoterica NextG Economy

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Esoterica NextG Economy are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly conflicting technical and fundamental indicators, Esoterica NextG may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Consumer Discretionary and Esoterica NextG

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

The idea behind Consumer Discretionary Select and Esoterica NextG Economy 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.