Correlation Between World Energy and Sentinel Small

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

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

Diversification Opportunities for World Energy and Sentinel Small

0.86

Correlation Coefficient

World Energy  Sentinel Small

Very poor diversification

The 3 months correlation between World and Sentinel is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding World Energy Fund and Sentinel Small Pany in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sentinel Small Pany and World Energy 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 World Energy Fund are associated (or correlated) with Sentinel Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sentinel Small Pany has no effect on the direction of World Energy i.e., World Energy and Sentinel Small go up and down completely randomly.

Pair Corralation between World Energy and Sentinel Small

Assuming the 90 days horizon World Energy is expected to generate 1.06 times less return on investment than Sentinel Small. But when comparing it to its historical volatility, World Energy Fund is 1.11 times less risky than Sentinel Small. It trades about 0.31 of its potential returns per unit of risk. Sentinel Small Pany is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  717.00  in Sentinel Small Pany on September 4, 2024 and sell it today you would earn a total of  63.00  from holding Sentinel Small Pany or generate 8.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.24%
Values	Daily Returns

World Energy Fund  vs.  Sentinel Small Pany

World Energy

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in World Energy Fund are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, World Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Sentinel Small Pany

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sentinel Small Pany are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Sentinel Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with World Energy and Sentinel Small

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

The idea behind World Energy Fund and Sentinel Small Pany 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.