Correlation Between Utilities Portfolio and Consumer Discretionary

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

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

Diversification Opportunities for Utilities Portfolio and Consumer Discretionary

0.8

Correlation Coefficient

Utilities Portfolio  Consumer Discretionary

Very poor diversification

The 3 months correlation between Utilities and CONSUMER is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Utilities Portfolio Utilities and Consumer Discretionary Portfol in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumer Discretionary and Utilities 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 Utilities Portfolio Utilities are associated (or correlated) with Consumer Discretionary. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumer Discretionary has no effect on the direction of Utilities Portfolio i.e., Utilities Portfolio and Consumer Discretionary go up and down completely randomly.

Pair Corralation between Utilities Portfolio and Consumer Discretionary

Assuming the 90 days horizon Utilities Portfolio is expected to generate 1.54 times less return on investment than Consumer Discretionary. In addition to that, Utilities Portfolio is 1.05 times more volatile than Consumer Discretionary Portfolio. It trades about 0.16 of its total potential returns per unit of risk. Consumer Discretionary Portfolio is currently generating about 0.25 per unit of volatility. If you would invest  6,103  in Consumer Discretionary Portfolio on September 5, 2024 and sell it today you would earn a total of  1,103  from holding Consumer Discretionary Portfolio or generate 18.07% return on investment over 90 days.

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

Utilities Portfolio Utilities  vs.  Consumer Discretionary Portfol

Utilities Portfolio

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Utilities Portfolio Utilities are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Utilities Portfolio may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Consumer Discretionary

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Consumer Discretionary Portfolio are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Consumer Discretionary showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Utilities Portfolio and Consumer Discretionary

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

The idea behind Utilities Portfolio Utilities and Consumer Discretionary 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.