Correlation Between Industrials Portfolio and Automotive Portfolio

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

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

Diversification Opportunities for Industrials Portfolio and Automotive Portfolio

0.85

Correlation Coefficient

Industrials Portfolio  Automotive Portfolio

Very poor diversification

The 3 months correlation between Industrials and Automotive is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Industrials Portfolio Industri and Automotive Portfolio Automotiv in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Automotive Portfolio and Industrials Portfolio 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 Industrials Portfolio Industrials are associated (or correlated) with Automotive Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Automotive Portfolio has no effect on the direction of Industrials Portfolio i.e., Industrials Portfolio and Automotive Portfolio go up and down completely randomly.

Pair Corralation between Industrials Portfolio and Automotive Portfolio

Assuming the 90 days horizon Industrials Portfolio is expected to generate 1.53 times less return on investment than Automotive Portfolio. But when comparing it to its historical volatility, Industrials Portfolio Industrials is 1.04 times less risky than Automotive Portfolio. It trades about 0.1 of its potential returns per unit of risk. Automotive Portfolio Automotive is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  5,195  in Automotive Portfolio Automotive on September 17, 2024 and sell it today you would earn a total of  562.00  from holding Automotive Portfolio Automotive or generate 10.82% return on investment over 90 days.

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

Industrials Portfolio Industri  vs.  Automotive Portfolio Automotiv

Industrials Portfolio

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Industrials Portfolio Industrials are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Industrials Portfolio may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Automotive Portfolio

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Industrials Portfolio and Automotive Portfolio

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

The idea behind Industrials Portfolio Industrials and Automotive Portfolio Automotive 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.