Correlation Between Global Technology and Science Technology

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

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

Diversification Opportunities for Global Technology and Science Technology

0.97

Correlation Coefficient

Global Technology  Science Technology

Almost no diversification

The 3 months correlation between Global and Science is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Global Technology Portfolio and Science Technology Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Science Technology and Global Technology 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 Global Technology Portfolio are associated (or correlated) with Science Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Science Technology has no effect on the direction of Global Technology i.e., Global Technology and Science Technology go up and down completely randomly.

Pair Corralation between Global Technology and Science Technology

Assuming the 90 days horizon Global Technology is expected to generate 1.45 times less return on investment than Science Technology. But when comparing it to its historical volatility, Global Technology Portfolio is 1.04 times less risky than Science Technology. It trades about 0.14 of its potential returns per unit of risk. Science Technology Fund is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  2,493  in Science Technology Fund on August 31, 2024 and sell it today you would earn a total of  379.00  from holding Science Technology Fund or generate 15.2% return on investment over 90 days.

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

Global Technology Portfolio  vs.  Science Technology Fund

Global Technology

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Global Technology Portfolio are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Global Technology may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Science Technology

Risk-Adjusted Performance

15 of 100

OK

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

Pair Trading with Global Technology and Science Technology

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

The idea behind Global Technology Portfolio and Science Technology Fund 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.