Correlation Between Biotechnology Fund and Bats Series

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

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

Diversification Opportunities for Biotechnology Fund and Bats Series

0.5

Correlation Coefficient

Biotechnology Fund  Bats Series

Very weak diversification

The 3 months correlation between BIOTECHNOLOGY and Bats is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Biotechnology Fund Class and Bats Series M in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bats Series M and Biotechnology 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 Biotechnology Fund Class are associated (or correlated) with Bats Series. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bats Series M has no effect on the direction of Biotechnology Fund i.e., Biotechnology Fund and Bats Series go up and down completely randomly.

Pair Corralation between Biotechnology Fund and Bats Series

Assuming the 90 days horizon Biotechnology Fund Class is expected to generate 3.55 times more return on investment than Bats Series. However, Biotechnology Fund is 3.55 times more volatile than Bats Series M. It trades about -0.02 of its potential returns per unit of risk. Bats Series M is currently generating about -0.06 per unit of risk. If you would invest  5,483  in Biotechnology Fund Class on August 31, 2024 and sell it today you would lose (88.00) from holding Biotechnology Fund Class or give up 1.6% of portfolio value over 90 days.

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

Biotechnology Fund Class  vs.  Bats Series M

Biotechnology Fund Class

Risk-Adjusted Performance

0 of 100

Very Weak

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

Bats Series M

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Biotechnology Fund and Bats Series

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

The idea behind Biotechnology Fund Class and Bats Series M 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.