Correlation Between Materials Portfolio and Industrials Portfolio

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

Diversification Opportunities for Materials Portfolio and Industrials Portfolio

0.27

Correlation Coefficient

Materials Portfolio  Industrials Portfolio

Modest diversification

The 3 months correlation between Materials and Industrials is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Materials Portfolio Fidelity and Industrials Portfolio Industri in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrials Portfolio 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 Industrials Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrials Portfolio has no effect on the direction of Materials Portfolio i.e., Materials Portfolio and Industrials Portfolio go up and down completely randomly.

Pair Corralation between Materials Portfolio and Industrials Portfolio

Assuming the 90 days horizon Materials Portfolio Fidelity is expected to under-perform the Industrials Portfolio. But the mutual fund apears to be less risky and, when comparing its historical volatility, Materials Portfolio Fidelity is 1.21 times less risky than Industrials Portfolio. The mutual fund trades about -0.65 of its potential returns per unit of risk. The Industrials Portfolio Industrials is currently generating about -0.4 of returns per unit of risk over similar time horizon. If you would invest  4,624  in Industrials Portfolio Industrials on September 25, 2024 and sell it today you would lose (356.00) from holding Industrials Portfolio Industrials or give up 7.7% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Materials Portfolio Fidelity  vs.  Industrials Portfolio Industri

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 latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Industrials Portfolio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Industrials Portfolio Industrials has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Industrials Portfolio 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 Industrials Portfolio

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

The idea behind Materials Portfolio Fidelity and Industrials Portfolio Industrials 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.