Correlation Between Rational Dividend and Basic Materials

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

By analyzing existing cross correlation between Rational Dividend Capture and Basic Materials Fund, you can compare the effects of market volatilities on Rational Dividend and Basic Materials 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 Rational Dividend with a short position of Basic Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rational Dividend and Basic Materials.

Diversification Opportunities for Rational Dividend and Basic Materials

0.5

Correlation Coefficient

Rational Dividend  Basic Materials

Very weak diversification

The 3 months correlation between Rational and Basic is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Rational Dividend Capture and Basic Materials Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Basic Materials and Rational Dividend 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 Rational Dividend Capture are associated (or correlated) with Basic Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Basic Materials has no effect on the direction of Rational Dividend i.e., Rational Dividend and Basic Materials go up and down completely randomly.

Pair Corralation between Rational Dividend and Basic Materials

Assuming the 90 days horizon Rational Dividend is expected to generate 1.65 times less return on investment than Basic Materials. But when comparing it to its historical volatility, Rational Dividend Capture is 1.9 times less risky than Basic Materials. It trades about 0.16 of its potential returns per unit of risk. Basic Materials Fund is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  6,657  in Basic Materials Fund on May 10, 2025 and sell it today you would earn a total of  555.00  from holding Basic Materials Fund or generate 8.34% return on investment over 90 days.

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

Rational Dividend Capture  vs.  Basic Materials Fund

Rational Dividend Capture

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rational Dividend Capture are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Rational Dividend is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Basic Materials

Risk-Adjusted Performance

Fair

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

Pair Trading with Rational Dividend and Basic Materials

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

The idea behind Rational Dividend Capture and Basic Materials Fund 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.