Correlation Between Telecommunications and Banking Fund

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Can any of the company-specific risk be diversified away by investing in both Telecommunications and Banking 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 Telecommunications and Banking Fund 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 Banking Fund Investor, you can compare the effects of market volatilities on Telecommunications and Banking 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 Telecommunications with a short position of Banking Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Telecommunications and Banking Fund.

Diversification Opportunities for Telecommunications and Banking Fund

0.85
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Telecommunications and Banking is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Telecommunications Fund Invest and Banking Fund Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banking Fund Investor 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 Banking Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banking Fund Investor has no effect on the direction of Telecommunications i.e., Telecommunications and Banking Fund go up and down completely randomly.

Pair Corralation between Telecommunications and Banking Fund

Assuming the 90 days horizon Telecommunications is expected to generate 1.31 times less return on investment than Banking Fund. But when comparing it to its historical volatility, Telecommunications Fund Investor is 2.17 times less risky than Banking Fund. It trades about 0.28 of its potential returns per unit of risk. Banking Fund Investor is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  9,399  in Banking Fund Investor on September 6, 2024 and sell it today you would earn a total of  1,796  from holding Banking Fund Investor or generate 19.11% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Telecommunications Fund Invest  vs.  Banking Fund Investor

 Performance 
       Timeline  
Telecommunications 

Risk-Adjusted Performance

22 of 100

 
Weak
 
Strong
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.
Banking Fund Investor 

Risk-Adjusted Performance

13 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Banking Fund Investor are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Banking Fund showed solid returns over the last few months and may actually be approaching a breakup point.

Telecommunications and Banking Fund Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Telecommunications and Banking Fund

The main advantage of trading using opposite Telecommunications and Banking Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Telecommunications position performs unexpectedly, Banking 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 Banking Fund will offset losses from the drop in Banking Fund's long position.
The idea behind Telecommunications Fund Investor and Banking Fund Investor 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.

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