Correlation Between Technology Portfolio and Banking Portfolio

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

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

Diversification Opportunities for Technology Portfolio and Banking Portfolio

0.97

Correlation Coefficient

Technology Portfolio  Banking Portfolio

Almost no diversification

The 3 months correlation between Technology and Banking is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Technology Portfolio Technolog and Banking Portfolio Banking in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banking Portfolio Banking and Technology Portfolio 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 Technology Portfolio Technology are associated (or correlated) with Banking Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banking Portfolio Banking has no effect on the direction of Technology Portfolio i.e., Technology Portfolio and Banking Portfolio go up and down completely randomly.

Pair Corralation between Technology Portfolio and Banking Portfolio

Assuming the 90 days horizon Technology Portfolio Technology is expected to generate 1.28 times more return on investment than Banking Portfolio. However, Technology Portfolio is 1.28 times more volatile than Banking Portfolio Banking. It trades about -0.04 of its potential returns per unit of risk. Banking Portfolio Banking is currently generating about -0.07 per unit of risk. If you would invest  3,542  in Technology Portfolio Technology on February 3, 2025 and sell it today you would lose (326.00) from holding Technology Portfolio Technology or give up 9.2% of portfolio value over 90 days.

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

Technology Portfolio Technolog  vs.  Banking Portfolio Banking

Technology Portfolio

Risk-Adjusted Performance

Very Weak

Over the last 90 days Technology Portfolio Technology has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Banking Portfolio Banking

Risk-Adjusted Performance

Very Weak

Over the last 90 days Banking Portfolio Banking has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Technology Portfolio and Banking Portfolio

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

The idea behind Technology Portfolio Technology and Banking Portfolio Banking 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.