Correlation Between Oil Gas and Madison Diversified

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

By analyzing existing cross correlation between Oil Gas Ultrasector and Madison Diversified Income, you can compare the effects of market volatilities on Oil Gas and Madison Diversified 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 Oil Gas with a short position of Madison Diversified. Check out your portfolio center. Please also check ongoing floating volatility patterns of Oil Gas and Madison Diversified.

Diversification Opportunities for Oil Gas and Madison Diversified

0.44

Correlation Coefficient

Oil Gas  Madison Diversified

Very weak diversification

The 3 months correlation between Oil and Madison is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Oil Gas Ultrasector and Madison Diversified Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison Diversified and Oil Gas 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 Oil Gas Ultrasector are associated (or correlated) with Madison Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison Diversified has no effect on the direction of Oil Gas i.e., Oil Gas and Madison Diversified go up and down completely randomly.

Pair Corralation between Oil Gas and Madison Diversified

Assuming the 90 days horizon Oil Gas is expected to generate 1.35 times less return on investment than Madison Diversified. In addition to that, Oil Gas is 6.1 times more volatile than Madison Diversified Income. It trades about 0.02 of its total potential returns per unit of risk. Madison Diversified Income is currently generating about 0.13 per unit of volatility. If you would invest  1,261  in Madison Diversified Income on September 15, 2024 and sell it today you would earn a total of  61.00  from holding Madison Diversified Income or generate 4.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.21%
Values	Daily Returns

Oil Gas Ultrasector  vs.  Madison Diversified Income

Oil Gas Ultrasector

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Oil Gas Ultrasector are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Oil Gas is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Madison Diversified

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Madison Diversified Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Madison Diversified is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Oil Gas and Madison Diversified

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

The idea behind Oil Gas Ultrasector and Madison Diversified Income 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 Transaction History module to view history of all your transactions and understand their impact on performance.