Correlation Between Consumer Staples and Utilities Portfolio

Can any of the company-specific risk be diversified away by investing in both Consumer Staples and Utilities 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 Consumer Staples and Utilities Portfolio 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 Utilities Portfolio Utilities, you can compare the effects of market volatilities on Consumer Staples and Utilities 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 Consumer Staples with a short position of Utilities Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consumer Staples and Utilities Portfolio.

Diversification Opportunities for Consumer Staples and Utilities Portfolio

-0.14

Correlation Coefficient

Consumer Staples  Utilities Portfolio

Good diversification

The 3 months correlation between Consumer and Utilities is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Staples Portfolio and Utilities Portfolio Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Utilities Portfolio 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 Utilities Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Utilities Portfolio has no effect on the direction of Consumer Staples i.e., Consumer Staples and Utilities Portfolio go up and down completely randomly.

Pair Corralation between Consumer Staples and Utilities Portfolio

Assuming the 90 days horizon Consumer Staples Portfolio is expected to under-perform the Utilities Portfolio. But the mutual fund apears to be less risky and, when comparing its historical volatility, Consumer Staples Portfolio is 1.72 times less risky than Utilities Portfolio. The mutual fund trades about 0.0 of its potential returns per unit of risk. The Utilities Portfolio Utilities is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  11,697  in Utilities Portfolio Utilities on September 3, 2024 and sell it today you would earn a total of  1,679  from holding Utilities Portfolio Utilities or generate 14.35% 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.  Utilities Portfolio Utilities

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.

Utilities Portfolio

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Utilities Portfolio Utilities are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Utilities Portfolio showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Consumer Staples and Utilities Portfolio

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

The idea behind Consumer Staples Portfolio and Utilities Portfolio Utilities 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.