Correlation Between Consumer Discretionary and Utilities Portfolio

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

By analyzing existing cross correlation between Consumer Discretionary Portfolio and Utilities Portfolio Utilities, you can compare the effects of market volatilities on Consumer Discretionary and Utilities Portfolio 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 Utilities Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consumer Discretionary and Utilities Portfolio.

Diversification Opportunities for Consumer Discretionary and Utilities Portfolio

0.79

Correlation Coefficient

Consumer Discretionary  Utilities Portfolio

Poor diversification

The 3 months correlation between Consumer and Utilities is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Discretionary Portfol and Utilities Portfolio Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Utilities Portfolio 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 Portfolio are associated (or correlated) with Utilities Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Utilities Portfolio has no effect on the direction of Consumer Discretionary i.e., Consumer Discretionary and Utilities Portfolio go up and down completely randomly.

Pair Corralation between Consumer Discretionary and Utilities Portfolio

Assuming the 90 days horizon Consumer Discretionary is expected to generate 1.22 times less return on investment than Utilities Portfolio. In addition to that, Consumer Discretionary is 1.32 times more volatile than Utilities Portfolio Utilities. It trades about 0.08 of its total potential returns per unit of risk. Utilities Portfolio Utilities is currently generating about 0.13 per unit of volatility. If you would invest  12,405  in Utilities Portfolio Utilities on May 16, 2025 and sell it today you would earn a total of  837.00  from holding Utilities Portfolio Utilities or generate 6.75% return on investment over 90 days.

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

Consumer Discretionary Portfol  vs.  Utilities Portfolio Utilities

Consumer Discretionary

Risk-Adjusted Performance

Mild

Compared to the overall equity markets, risk-adjusted returns on investments in Consumer Discretionary Portfolio are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Consumer Discretionary is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Utilities Portfolio

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Utilities Portfolio Utilities are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Utilities Portfolio may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Consumer Discretionary and Utilities Portfolio

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

The idea behind Consumer Discretionary Portfolio and Utilities Portfolio 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.