Correlation Between Consumer Staples and Telecommunications

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

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

Diversification Opportunities for Consumer Staples and Telecommunications

-0.38

Correlation Coefficient

Consumer Staples  Telecommunications

Very good diversification

The 3 months correlation between Consumer and Telecommunications is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Staples Portfolio and Telecommunications Portfolio T in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telecommunications and Consumer Staples 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 Consumer Staples Portfolio are associated (or correlated) with Telecommunications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telecommunications has no effect on the direction of Consumer Staples i.e., Consumer Staples and Telecommunications go up and down completely randomly.

Pair Corralation between Consumer Staples and Telecommunications

Assuming the 90 days horizon Consumer Staples Portfolio is expected to under-perform the Telecommunications. But the mutual fund apears to be less risky and, when comparing its historical volatility, Consumer Staples Portfolio is 1.43 times less risky than Telecommunications. The mutual fund trades about -0.04 of its potential returns per unit of risk. The Telecommunications Portfolio Telecommunications is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  5,305  in Telecommunications Portfolio Telecommunications on September 17, 2024 and sell it today you would earn a total of  366.00  from holding Telecommunications Portfolio Telecommunications or generate 6.9% return on investment over 90 days.

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

Consumer Staples Portfolio  vs.  Telecommunications Portfolio T

Consumer Staples Por

Risk-Adjusted Performance

0 of 100

Very Weak

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

Telecommunications

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Telecommunications Portfolio Telecommunications are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Telecommunications may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Consumer Staples and Telecommunications

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

The idea behind Consumer Staples Portfolio and Telecommunications Portfolio Telecommunications 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.