Correlation Between Financial Services and Transportation Fund

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

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

Diversification Opportunities for Financial Services and Transportation Fund

0.91

Correlation Coefficient

Financial Services  Transportation Fund

Almost no diversification

The 3 months correlation between Financial and Transportation is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Financial Services Fund and Transportation Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transportation Fund Class and Financial Services 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 Financial Services Fund are associated (or correlated) with Transportation Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transportation Fund Class has no effect on the direction of Financial Services i.e., Financial Services and Transportation Fund go up and down completely randomly.

Pair Corralation between Financial Services and Transportation Fund

Assuming the 90 days horizon Financial Services is expected to generate 1.16 times less return on investment than Transportation Fund. But when comparing it to its historical volatility, Financial Services Fund is 1.17 times less risky than Transportation Fund. It trades about 0.07 of its potential returns per unit of risk. Transportation Fund Class is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  4,237  in Transportation Fund Class on September 25, 2024 and sell it today you would earn a total of  223.00  from holding Transportation Fund Class or generate 5.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Financial Services Fund  vs.  Transportation Fund Class

Financial Services

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Services Fund are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Financial Services is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Transportation Fund Class

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Transportation Fund Class are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Transportation Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Financial Services and Transportation Fund

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

The idea behind Financial Services Fund and Transportation Fund Class 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.