Correlation Between Financial Services and Moderately Aggressive

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

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

Diversification Opportunities for Financial Services and Moderately Aggressive

0.98

Correlation Coefficient

Financial Services  Moderately Aggressive

Almost no diversification

The 3 months correlation between Financial and Moderately is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Financial Services Portfolio and Moderately Aggressive Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Moderately Aggressive and Financial Services 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 Financial Services Portfolio are associated (or correlated) with Moderately Aggressive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Moderately Aggressive has no effect on the direction of Financial Services i.e., Financial Services and Moderately Aggressive go up and down completely randomly.

Pair Corralation between Financial Services and Moderately Aggressive

Assuming the 90 days horizon Financial Services Portfolio is expected to generate 1.72 times more return on investment than Moderately Aggressive. However, Financial Services is 1.72 times more volatile than Moderately Aggressive Balanced. It trades about 0.28 of its potential returns per unit of risk. Moderately Aggressive Balanced is currently generating about 0.38 per unit of risk. If you would invest  853.00  in Financial Services Portfolio on April 21, 2025 and sell it today you would earn a total of  151.00  from holding Financial Services Portfolio or generate 17.7% return on investment over 90 days.

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

Financial Services Portfolio  vs.  Moderately Aggressive Balanced

Financial Services

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Services Portfolio are ranked lower than 21 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Financial Services showed solid returns over the last few months and may actually be approaching a breakup point.

Moderately Aggressive

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Moderately Aggressive Balanced are ranked lower than 30 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Moderately Aggressive showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Financial Services and Moderately Aggressive

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

The idea behind Financial Services Portfolio and Moderately Aggressive Balanced 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.