Correlation Between Defense and Chemicals Portfolio

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

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

Diversification Opportunities for Defense and Chemicals Portfolio

0.6

Correlation Coefficient

Defense  Chemicals Portfolio

Poor diversification

The 3 months correlation between Defense and Chemicals is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Defense And Aerospace and Chemicals Portfolio Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chemicals Portfolio and Defense 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 Defense And Aerospace are associated (or correlated) with Chemicals Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chemicals Portfolio has no effect on the direction of Defense i.e., Defense and Chemicals Portfolio go up and down completely randomly.

Pair Corralation between Defense and Chemicals Portfolio

Assuming the 90 days horizon Defense And Aerospace is expected to generate 1.24 times more return on investment than Chemicals Portfolio. However, Defense is 1.24 times more volatile than Chemicals Portfolio Chemicals. It trades about 0.04 of its potential returns per unit of risk. Chemicals Portfolio Chemicals is currently generating about -0.01 per unit of risk. If you would invest  1,917  in Defense And Aerospace on September 13, 2024 and sell it today you would earn a total of  42.00  from holding Defense And Aerospace or generate 2.19% return on investment over 90 days.

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

Defense And Aerospace  vs.  Chemicals Portfolio Chemicals

Defense And Aerospace

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Defense And Aerospace are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Defense is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Chemicals Portfolio

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Defense And Aerospace and Chemicals Portfolio Chemicals 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.