Correlation Between Telecommunications and Consumer Finance

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

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

Diversification Opportunities for Telecommunications and Consumer Finance

0.93

Correlation Coefficient

Telecommunications  Consumer Finance

Almost no diversification

The 3 months correlation between Telecommunications and Consumer is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Telecommunications Portfolio T and Consumer Finance Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumer Finance Por and Telecommunications 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 Telecommunications Portfolio Telecommunications are associated (or correlated) with Consumer Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumer Finance Por has no effect on the direction of Telecommunications i.e., Telecommunications and Consumer Finance go up and down completely randomly.

Pair Corralation between Telecommunications and Consumer Finance

Assuming the 90 days horizon Telecommunications is expected to generate 2.44 times less return on investment than Consumer Finance. But when comparing it to its historical volatility, Telecommunications Portfolio Telecommunications is 1.24 times less risky than Consumer Finance. It trades about 0.1 of its potential returns per unit of risk. Consumer Finance Portfolio is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,743  in Consumer Finance Portfolio on September 16, 2024 and sell it today you would earn a total of  255.00  from holding Consumer Finance Portfolio or generate 14.63% return on investment over 90 days.

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

Telecommunications Portfolio T  vs.  Consumer Finance Portfolio

Telecommunications

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Telecommunications Portfolio Telecommunications are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Telecommunications is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Consumer Finance Por

Risk-Adjusted Performance

15 of 100

Good

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

Pair Trading with Telecommunications and Consumer Finance

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

The idea behind Telecommunications Portfolio Telecommunications and Consumer Finance Portfolio 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.