Correlation Between Applied Finance and Goldman Sachs

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

By analyzing existing cross correlation between Applied Finance Explorer and Goldman Sachs Small, you can compare the effects of market volatilities on Applied Finance and Goldman Sachs 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 Applied Finance with a short position of Goldman Sachs. Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Finance and Goldman Sachs.

Diversification Opportunities for Applied Finance and Goldman Sachs

0.98

Correlation Coefficient

Applied Finance  Goldman Sachs

Almost no diversification

The 3 months correlation between Applied and Goldman is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Applied Finance Explorer and Goldman Sachs Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goldman Sachs Small and Applied Finance 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 Applied Finance Explorer are associated (or correlated) with Goldman Sachs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goldman Sachs Small has no effect on the direction of Applied Finance i.e., Applied Finance and Goldman Sachs go up and down completely randomly.

Pair Corralation between Applied Finance and Goldman Sachs

Assuming the 90 days horizon Applied Finance is expected to generate 1.25 times less return on investment than Goldman Sachs. But when comparing it to its historical volatility, Applied Finance Explorer is 1.19 times less risky than Goldman Sachs. It trades about 0.14 of its potential returns per unit of risk. Goldman Sachs Small is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,821  in Goldman Sachs Small on September 2, 2024 and sell it today you would earn a total of  358.00  from holding Goldman Sachs Small or generate 12.69% return on investment over 90 days.

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

Applied Finance Explorer  vs.  Goldman Sachs Small

Applied Finance Explorer

Risk-Adjusted Performance

10 of 100

OK

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

Goldman Sachs Small

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Goldman Sachs Small are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Goldman Sachs may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Applied Finance and Goldman Sachs

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

The idea behind Applied Finance Explorer and Goldman Sachs Small 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.