Correlation Between Utilities Select and Virtus Reaves

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

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

Diversification Opportunities for Utilities Select and Virtus Reaves

0.88

Correlation Coefficient

Utilities Select  Virtus Reaves

Very poor diversification

The 3 months correlation between Utilities and Virtus is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Utilities Select Sector and Virtus Reaves Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Virtus Reaves Utilities and Utilities 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 Utilities Select Sector are associated (or correlated) with Virtus Reaves. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Virtus Reaves Utilities has no effect on the direction of Utilities Select i.e., Utilities Select and Virtus Reaves go up and down completely randomly.

Pair Corralation between Utilities Select and Virtus Reaves

Considering the 90-day investment horizon Utilities Select is expected to generate 2.87 times less return on investment than Virtus Reaves. But when comparing it to its historical volatility, Utilities Select Sector is 1.43 times less risky than Virtus Reaves. It trades about 0.11 of its potential returns per unit of risk. Virtus Reaves Utilities is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  5,575  in Virtus Reaves Utilities on September 3, 2024 and sell it today you would earn a total of  1,257  from holding Virtus Reaves Utilities or generate 22.55% return on investment over 90 days.

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

Utilities Select Sector  vs.  Virtus Reaves Utilities

Utilities Select Sector

Risk-Adjusted Performance

8 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Utilities Select Sector are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak essential indicators, Utilities Select may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Virtus Reaves Utilities

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Virtus Reaves Utilities are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical and fundamental indicators, Virtus Reaves unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Utilities Select and Virtus Reaves

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

The idea behind Utilities Select Sector and Virtus Reaves Utilities 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.