Correlation Between Energy Resources and VanEck FTSE

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

By analyzing existing cross correlation between Energy Resources and VanEck FTSE Global, you can compare the effects of market volatilities on Energy Resources and VanEck FTSE 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 Energy Resources with a short position of VanEck FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Resources and VanEck FTSE.

Diversification Opportunities for Energy Resources and VanEck FTSE

-0.28

Correlation Coefficient

Energy Resources  VanEck FTSE

Very good diversification

The 3 months correlation between Energy and VanEck is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Energy Resources and VanEck FTSE Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck FTSE Global and Energy Resources 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 Energy Resources are associated (or correlated) with VanEck FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck FTSE Global has no effect on the direction of Energy Resources i.e., Energy Resources and VanEck FTSE go up and down completely randomly.

Pair Corralation between Energy Resources and VanEck FTSE

Assuming the 90 days trading horizon Energy Resources is expected to generate 50.49 times more return on investment than VanEck FTSE. However, Energy Resources is 50.49 times more volatile than VanEck FTSE Global. It trades about 0.06 of its potential returns per unit of risk. VanEck FTSE Global is currently generating about 0.42 per unit of risk. If you would invest  0.30  in Energy Resources on September 3, 2024 and sell it today you would lose (0.10) from holding Energy Resources or give up 33.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Energy Resources  vs.  VanEck FTSE Global

Energy Resources

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Resources are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Energy Resources unveiled solid returns over the last few months and may actually be approaching a breakup point.

VanEck FTSE Global

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck FTSE Global are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, VanEck FTSE is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Energy Resources and VanEck FTSE

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

The idea behind Energy Resources and VanEck FTSE Global 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.