Correlation Between Banking Fund and Precious Metals

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

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

Diversification Opportunities for Banking Fund and Precious Metals

-0.61

Correlation Coefficient

Banking Fund  Precious Metals

Excellent diversification

The 3 months correlation between Banking and Precious is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Banking Fund Class and Precious Metals Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Precious Metals and Banking Fund 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 Banking Fund Class are associated (or correlated) with Precious Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Precious Metals has no effect on the direction of Banking Fund i.e., Banking Fund and Precious Metals go up and down completely randomly.

Pair Corralation between Banking Fund and Precious Metals

Assuming the 90 days horizon Banking Fund Class is expected to generate 0.88 times more return on investment than Precious Metals. However, Banking Fund Class is 1.14 times less risky than Precious Metals. It trades about 0.09 of its potential returns per unit of risk. Precious Metals Fund is currently generating about -0.05 per unit of risk. If you would invest  8,516  in Banking Fund Class on September 15, 2024 and sell it today you would earn a total of  822.00  from holding Banking Fund Class or generate 9.65% return on investment over 90 days.

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

Banking Fund Class  vs.  Precious Metals Fund

Banking Fund Class

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Banking Fund Class are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward-looking signals, Banking Fund may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Precious Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Precious Metals Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong primary indicators, Precious Metals is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Banking Fund and Precious Metals

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

The idea behind Banking Fund Class and Precious Metals 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.

Check out your portfolio center.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.