Correlation Between Stock Index and Investment
Can any of the company-specific risk be diversified away by investing in both Stock Index and Investment 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 Stock Index and Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Stock Index Fund and Investment Of America, you can compare the effects of market volatilities on Stock Index and Investment 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 Stock Index with a short position of Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stock Index and Investment.
Diversification Opportunities for Stock Index and Investment
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Stock and Investment is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Stock Index Fund and Investment Of America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investment Of America and Stock Index 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 Stock Index Fund are associated (or correlated) with Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investment Of America has no effect on the direction of Stock Index i.e., Stock Index and Investment go up and down completely randomly.
Pair Corralation between Stock Index and Investment
Assuming the 90 days horizon Stock Index is expected to generate 1.31 times less return on investment than Investment. But when comparing it to its historical volatility, Stock Index Fund is 1.02 times less risky than Investment. It trades about 0.09 of its potential returns per unit of risk. Investment Of America is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 5,105 in Investment Of America on January 26, 2024 and sell it today you would earn a total of 277.00 from holding Investment Of America or generate 5.43% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Stock Index Fund vs. Investment Of America
Performance |
Timeline |
Stock Index Fund |
Investment Of America |
Stock Index and Investment Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Stock Index and Investment
The main advantage of trading using opposite Stock Index and Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stock Index position performs unexpectedly, Investment 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 Investment will offset losses from the drop in Investment's long position.The idea behind Stock Index Fund and Investment Of America 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.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 Commodity Directory module to find actively traded commodities issued by global exchanges.
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