Correlation Between Materials Select and CoreCommodity Natural

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

By analyzing existing cross correlation between Materials Select Sector and CoreCommodity Natural Resources, you can compare the effects of market volatilities on Materials Select and CoreCommodity Natural 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 Materials Select with a short position of CoreCommodity Natural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Materials Select and CoreCommodity Natural.

Diversification Opportunities for Materials Select and CoreCommodity Natural

0.8

Correlation Coefficient

Materials Select  CoreCommodity Natural

Very poor diversification

The 3 months correlation between Materials and CoreCommodity is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Materials Select Sector and CoreCommodity Natural Resource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CoreCommodity Natural and Materials Select 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 Materials Select Sector are associated (or correlated) with CoreCommodity Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CoreCommodity Natural has no effect on the direction of Materials Select i.e., Materials Select and CoreCommodity Natural go up and down completely randomly.

Pair Corralation between Materials Select and CoreCommodity Natural

Considering the 90-day investment horizon Materials Select is expected to generate 1.04 times less return on investment than CoreCommodity Natural. But when comparing it to its historical volatility, Materials Select Sector is 1.24 times less risky than CoreCommodity Natural. It trades about 0.07 of its potential returns per unit of risk. CoreCommodity Natural Resources is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,436  in CoreCommodity Natural Resources on September 3, 2024 and sell it today you would earn a total of  80.00  from holding CoreCommodity Natural Resources or generate 3.28% return on investment over 90 days.

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

Materials Select Sector  vs.  CoreCommodity Natural Resource

Materials Select Sector

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Materials Select Sector are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong essential indicators, Materials Select is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

CoreCommodity Natural

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CoreCommodity Natural Resources are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, CoreCommodity Natural is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Materials Select and CoreCommodity Natural

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

The idea behind Materials Select Sector and CoreCommodity Natural Resources 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.