Correlation Between Energy Basic and William Blair

Can any of the company-specific risk be diversified away by investing in both Energy Basic and William Blair 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 William Blair 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 William Blair Small Mid, you can compare the effects of market volatilities on Energy Basic and William Blair 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 William Blair. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Basic and William Blair.

Diversification Opportunities for Energy Basic and William Blair

0.49

Correlation Coefficient

Energy Basic  William Blair

Very weak diversification

The 3 months correlation between ENERGY and William is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Energy Basic Materials and William Blair Small Mid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on William Blair Small 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 William Blair. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of William Blair Small has no effect on the direction of Energy Basic i.e., Energy Basic and William Blair go up and down completely randomly.

Pair Corralation between Energy Basic and William Blair

Assuming the 90 days horizon Energy Basic is expected to generate 3.45 times less return on investment than William Blair. But when comparing it to its historical volatility, Energy Basic Materials is 1.06 times less risky than William Blair. It trades about 0.06 of its potential returns per unit of risk. William Blair Small Mid is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  2,986  in William Blair Small Mid on September 5, 2024 and sell it today you would earn a total of  373.00  from holding William Blair Small Mid or generate 12.49% return on investment over 90 days.

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

Energy Basic Materials  vs.  William Blair Small Mid

Energy Basic Materials

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Basic Materials are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Energy Basic is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

William Blair Small

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in William Blair Small Mid are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, William Blair may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Energy Basic and William Blair

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

The idea behind Energy Basic Materials and William Blair Small Mid 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.