Correlation Between Consumer Discretionary and United States
Can any of the company-specific risk be diversified away by investing in both Consumer Discretionary and United States 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 United States 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 United States Gasoline, you can compare the effects of market volatilities on Consumer Discretionary and United States 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 United States. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consumer Discretionary and United States.
Diversification Opportunities for Consumer Discretionary and United States
0.21 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Consumer and United is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Discretionary Select and United States Gasoline in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United States Gasoline 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 United States. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United States Gasoline has no effect on the direction of Consumer Discretionary i.e., Consumer Discretionary and United States go up and down completely randomly.
Pair Corralation between Consumer Discretionary and United States
Considering the 90-day investment horizon Consumer Discretionary is expected to generate 1.2 times less return on investment than United States. But when comparing it to its historical volatility, Consumer Discretionary Select is 1.68 times less risky than United States. It trades about 0.07 of its potential returns per unit of risk. United States Gasoline is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 5,903 in United States Gasoline on January 26, 2024 and sell it today you would earn a total of 1,269 from holding United States Gasoline or generate 21.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.6% |
| Values | Daily Returns |
Consumer Discretionary Select vs. United States Gasoline
Performance |
| Timeline |
| Consumer Discretionary |
| United States Gasoline |
Consumer Discretionary and United States Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Consumer Discretionary and United States
The main advantage of trading using opposite Consumer Discretionary and United States positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Consumer Discretionary position performs unexpectedly, United States 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 United States will offset losses from the drop in United States' long position.The idea behind Consumer Discretionary Select and United States Gasoline 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.
| United States vs. HUMANA INC | United States vs. Aquagold International | United States vs. Barloworld Ltd ADR | United States vs. Morningstar Unconstrained Allocation |
Check out your portfolio center.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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
Other Complementary Tools
| Price Exposure Probability Analyze equity upside and downside potential for a given time horizon across multiple markets | |
| Equity Search Search for actively traded equities including funds and ETFs from over 30 global markets | |
| Portfolio Comparator Compare the composition, asset allocations and performance of any two portfolios in your account | |
| Equity Valuation Check real value of public entities based on technical and fundamental data | |
| Sectors List of equity sectors categorizing publicly traded companies based on their primary business activities | |
| Content Syndication Quickly integrate customizable finance content to your own investment portal |