Correlation Between Telecommunications and Financial Services

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

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

Diversification Opportunities for Telecommunications and Financial Services

0.92

Correlation Coefficient

Telecommunications  Financial Services

Almost no diversification

The 3 months correlation between Telecommunications and Financial is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Telecommunications Fund Invest and Financial Services Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Services and Telecommunications 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 Telecommunications Fund Investor are associated (or correlated) with Financial Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Services has no effect on the direction of Telecommunications i.e., Telecommunications and Financial Services go up and down completely randomly.

Pair Corralation between Telecommunications and Financial Services

Assuming the 90 days horizon Telecommunications Fund Investor is expected to generate 0.84 times more return on investment than Financial Services. However, Telecommunications Fund Investor is 1.18 times less risky than Financial Services. It trades about 0.28 of its potential returns per unit of risk. Financial Services Fund is currently generating about 0.23 per unit of risk. If you would invest  4,749  in Telecommunications Fund Investor on September 6, 2024 and sell it today you would earn a total of  707.00  from holding Telecommunications Fund Investor or generate 14.89% return on investment over 90 days.

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

Telecommunications Fund Invest  vs.  Financial Services Fund

Telecommunications

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Telecommunications Fund Investor are ranked lower than 22 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Telecommunications showed solid returns over the last few months and may actually be approaching a breakup point.

Financial Services

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Services Fund are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Financial Services showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Telecommunications and Financial Services

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

The idea behind Telecommunications Fund Investor and Financial Services 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.