Correlation Between Materials Portfolio and Wilmington Diversified

Can any of the company-specific risk be diversified away by investing in both Materials Portfolio and Wilmington Diversified 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 Wilmington Diversified 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 Wilmington Diversified Income, you can compare the effects of market volatilities on Materials Portfolio and Wilmington Diversified 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 Wilmington Diversified. Check out your portfolio center. Please also check ongoing floating volatility patterns of Materials Portfolio and Wilmington Diversified.

Diversification Opportunities for Materials Portfolio and Wilmington Diversified

0.85

Correlation Coefficient

Materials Portfolio  Wilmington Diversified

Very poor diversification

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

Pair Corralation between Materials Portfolio and Wilmington Diversified

Assuming the 90 days horizon Materials Portfolio Fidelity is expected to under-perform the Wilmington Diversified. In addition to that, Materials Portfolio is 1.58 times more volatile than Wilmington Diversified Income. It trades about -0.01 of its total potential returns per unit of risk. Wilmington Diversified Income is currently generating about 0.05 per unit of volatility. If you would invest  1,136  in Wilmington Diversified Income on September 29, 2024 and sell it today you would earn a total of  195.00  from holding Wilmington Diversified Income or generate 17.17% return on investment over 90 days.

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

Materials Portfolio Fidelity  vs.  Wilmington Diversified Income

Materials Portfolio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Materials Portfolio Fidelity has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Wilmington Diversified

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Materials Portfolio and Wilmington Diversified

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

The idea behind Materials Portfolio Fidelity and Wilmington Diversified Income 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.