Correlation Between Energy Basic and Investec Global

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

By analyzing existing cross correlation between Energy Basic Materials and Investec Global Franchise, you can compare the effects of market volatilities on Energy Basic and Investec Global 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 Energy Basic with a short position of Investec Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Basic and Investec Global.

Diversification Opportunities for Energy Basic and Investec Global

-0.34

Correlation Coefficient

Energy Basic  Investec Global

Very good diversification

The 3 months correlation between Energy and Investec is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Energy Basic Materials and Investec Global Franchise in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investec Global Franchise and Energy Basic 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 Energy Basic Materials are associated (or correlated) with Investec Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investec Global Franchise has no effect on the direction of Energy Basic i.e., Energy Basic and Investec Global go up and down completely randomly.

Pair Corralation between Energy Basic and Investec Global

Assuming the 90 days horizon Energy Basic Materials is expected to under-perform the Investec Global. In addition to that, Energy Basic is 1.43 times more volatile than Investec Global Franchise. It trades about -0.53 of its total potential returns per unit of risk. Investec Global Franchise is currently generating about 0.02 per unit of volatility. If you would invest  1,783  in Investec Global Franchise on September 25, 2024 and sell it today you would earn a total of  5.00  from holding Investec Global Franchise or generate 0.28% return on investment over 90 days.

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

Energy Basic Materials  vs.  Investec Global Franchise

Energy Basic Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Energy Basic Materials has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Investec Global Franchise

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Investec Global Franchise are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Investec Global is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Energy Basic and Investec Global

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

The idea behind Energy Basic Materials and Investec Global Franchise 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.