Correlation Between Consumer Discretionary and ARK Fintech

Can any of the company-specific risk be diversified away by investing in both Consumer Discretionary and ARK Fintech 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 Consumer Discretionary and ARK Fintech into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Consumer Discretionary Select and ARK Fintech Innovation, you can compare the effects of market volatilities on Consumer Discretionary and ARK Fintech 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 Consumer Discretionary with a short position of ARK Fintech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consumer Discretionary and ARK Fintech.

Diversification Opportunities for Consumer Discretionary and ARK Fintech

0.95

Correlation Coefficient

Consumer Discretionary  ARK Fintech

Almost no diversification

The 3 months correlation between Consumer and ARK is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Discretionary Select and ARK Fintech Innovation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARK Fintech Innovation and Consumer Discretionary 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 Consumer Discretionary Select are associated (or correlated) with ARK Fintech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARK Fintech Innovation has no effect on the direction of Consumer Discretionary i.e., Consumer Discretionary and ARK Fintech go up and down completely randomly.

Pair Corralation between Consumer Discretionary and ARK Fintech

Considering the 90-day investment horizon Consumer Discretionary Select is expected to generate 0.63 times more return on investment than ARK Fintech. However, Consumer Discretionary Select is 1.59 times less risky than ARK Fintech. It trades about 0.23 of its potential returns per unit of risk. ARK Fintech Innovation is currently generating about 0.02 per unit of risk. If you would invest  21,500  in Consumer Discretionary Select on September 22, 2024 and sell it today you would earn a total of  1,391  from holding Consumer Discretionary Select or generate 6.47% return on investment over 90 days.

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

Consumer Discretionary Select  vs.  ARK Fintech Innovation

Consumer Discretionary

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Consumer Discretionary Select are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, Consumer Discretionary showed solid returns over the last few months and may actually be approaching a breakup point.

ARK Fintech Innovation

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ARK Fintech Innovation are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak forward-looking signals, ARK Fintech reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Consumer Discretionary and ARK Fintech

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

The idea behind Consumer Discretionary Select and ARK Fintech Innovation 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.