Correlation Between Transportation Fund and Energy Fund

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

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

Diversification Opportunities for Transportation Fund and Energy Fund

0.56

Correlation Coefficient

Transportation Fund  Energy Fund

Very weak diversification

The 3 months correlation between Transportation and Energy is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Transportation Fund Class and Energy Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Fund Class and Transportation Fund 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 Transportation Fund Class are associated (or correlated) with Energy Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Fund Class has no effect on the direction of Transportation Fund i.e., Transportation Fund and Energy Fund go up and down completely randomly.

Pair Corralation between Transportation Fund and Energy Fund

Assuming the 90 days horizon Transportation Fund Class is expected to generate 1.21 times more return on investment than Energy Fund. However, Transportation Fund is 1.21 times more volatile than Energy Fund Class. It trades about 0.12 of its potential returns per unit of risk. Energy Fund Class is currently generating about 0.12 per unit of risk. If you would invest  3,833  in Transportation Fund Class on May 6, 2025 and sell it today you would earn a total of  407.00  from holding Transportation Fund Class or generate 10.62% return on investment over 90 days.

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

Transportation Fund Class  vs.  Energy Fund Class

Transportation Fund Class

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Transportation Fund Class are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Transportation Fund may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Energy Fund Class

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Fund Class are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Energy Fund may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Transportation Fund and Energy Fund

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

The idea behind Transportation Fund Class and Energy Fund Class 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.