Correlation Between Banking Fund and Transportation Fund

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

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

Diversification Opportunities for Banking Fund and Transportation Fund

0.9

Correlation Coefficient

Banking Fund  Transportation Fund

Almost no diversification

The 3 months correlation between Banking and Transportation is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Banking Fund Investor 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 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 Investor 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 Banking Fund i.e., Banking Fund and Transportation Fund go up and down completely randomly.

Pair Corralation between Banking Fund and Transportation Fund

Assuming the 90 days horizon Banking Fund Investor is expected to under-perform the Transportation Fund. In addition to that, Banking Fund is 1.27 times more volatile than Transportation Fund Class. It trades about -0.44 of its total potential returns per unit of risk. Transportation Fund Class is currently generating about -0.21 per unit of volatility. If you would invest  4,689  in Transportation Fund Class on September 25, 2024 and sell it today you would lose (229.00) from holding Transportation Fund Class or give up 4.88% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.24%
Values	Daily Returns

Banking Fund Investor  vs.  Transportation Fund Class

Banking Fund Investor

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Banking Fund Investor are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Banking Fund may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 Banking Fund and Transportation Fund

The main advantage of trading using opposite Banking Fund and Transportation Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Banking Fund 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 Banking Fund Investor 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.