Correlation Between Electronics Fund and Transportation Fund

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

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

Diversification Opportunities for Electronics Fund and Transportation Fund

0.85

Correlation Coefficient

Electronics Fund  Transportation Fund

Very poor diversification

The 3 months correlation between Electronics and Transportation is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Electronics Fund Investor and Transportation Fund Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transportation Fund and Electronics 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 Electronics Fund Investor are associated (or correlated) with Transportation Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transportation Fund has no effect on the direction of Electronics Fund i.e., Electronics Fund and Transportation Fund go up and down completely randomly.

Pair Corralation between Electronics Fund and Transportation Fund

Assuming the 90 days horizon Electronics Fund Investor is expected to generate 1.11 times more return on investment than Transportation Fund. However, Electronics Fund is 1.11 times more volatile than Transportation Fund Investor. It trades about 0.2 of its potential returns per unit of risk. Transportation Fund Investor is currently generating about 0.04 per unit of risk. If you would invest  40,658  in Electronics Fund Investor on May 13, 2025 and sell it today you would earn a total of  7,307  from holding Electronics Fund Investor or generate 17.97% return on investment over 90 days.

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

Electronics Fund Investor  vs.  Transportation Fund Investor

Electronics Fund Investor

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Electronics Fund Investor are ranked lower than 15 (%) 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.

Transportation Fund

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Transportation Fund Investor are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Transportation Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Electronics Fund and Transportation Fund

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

The idea behind Electronics Fund Investor and Transportation 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.

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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.