Correlation Between Basic Materials and Electronics Fund

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

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

Diversification Opportunities for Basic Materials and Electronics Fund

0.95

Correlation Coefficient

Basic Materials  Electronics Fund

Almost no diversification

The 3 months correlation between BASIC and Electronics is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials Fund and Electronics Fund Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electronics Fund Investor and Basic Materials 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 Basic Materials Fund are associated (or correlated) with Electronics Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electronics Fund Investor has no effect on the direction of Basic Materials i.e., Basic Materials and Electronics Fund go up and down completely randomly.

Pair Corralation between Basic Materials and Electronics Fund

Assuming the 90 days horizon Basic Materials is expected to generate 2.02 times less return on investment than Electronics Fund. But when comparing it to its historical volatility, Basic Materials Fund is 1.57 times less risky than Electronics Fund. It trades about 0.24 of its potential returns per unit of risk. Electronics Fund Investor is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  40,125  in Electronics Fund Investor on April 25, 2025 and sell it today you would earn a total of  7,232  from holding Electronics Fund Investor or generate 18.02% return on investment over 90 days.

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

Basic Materials Fund  vs.  Electronics Fund Investor

Basic Materials

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Basic Materials Fund are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Basic Materials showed solid returns over the last few months and may actually be approaching a breakup point.

Electronics Fund Investor

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Electronics Fund Investor are ranked lower than 24 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Electronics Fund showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Basic Materials and Electronics Fund

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

The idea behind Basic Materials Fund and Electronics Fund Investor 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.