Correlation Between Materials Portfolio and Goldman Sachs

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

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

Diversification Opportunities for Materials Portfolio and Goldman Sachs

0.61

Correlation Coefficient

Materials Portfolio  Goldman Sachs

Poor diversification

The 3 months correlation between Materials and Goldman is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Materials Portfolio Fidelity and Goldman Sachs Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goldman Sachs Small and Materials 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 Materials Portfolio Fidelity are associated (or correlated) with Goldman Sachs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goldman Sachs Small has no effect on the direction of Materials Portfolio i.e., Materials Portfolio and Goldman Sachs go up and down completely randomly.

Pair Corralation between Materials Portfolio and Goldman Sachs

Assuming the 90 days horizon Materials Portfolio is expected to generate 1.66 times less return on investment than Goldman Sachs. But when comparing it to its historical volatility, Materials Portfolio Fidelity is 1.52 times less risky than Goldman Sachs. It trades about 0.14 of its potential returns per unit of risk. Goldman Sachs Small is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  2,794  in Goldman Sachs Small on September 5, 2024 and sell it today you would earn a total of  372.00  from holding Goldman Sachs Small or generate 13.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Materials Portfolio Fidelity  vs.  Goldman Sachs Small

Materials Portfolio

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Materials Portfolio Fidelity are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Materials Portfolio may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Goldman Sachs Small

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Goldman Sachs Small are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Goldman Sachs showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Materials Portfolio and Goldman Sachs

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

The idea behind Materials Portfolio Fidelity and Goldman Sachs Small 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.