Correlation Between Moderately Conservative and Financial Services

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

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

Diversification Opportunities for Moderately Conservative and Financial Services

0.93

Correlation Coefficient

Moderately Conservative  Financial Services

Almost no diversification

The 3 months correlation between Moderately and Financial is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Moderately Servative Balanced and Financial Services Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Services and Moderately Conservative 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 Moderately Servative Balanced are associated (or correlated) with Financial Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Services has no effect on the direction of Moderately Conservative i.e., Moderately Conservative and Financial Services go up and down completely randomly.

Pair Corralation between Moderately Conservative and Financial Services

Assuming the 90 days horizon Moderately Servative Balanced is expected to generate 0.51 times more return on investment than Financial Services. However, Moderately Servative Balanced is 1.95 times less risky than Financial Services. It trades about 0.21 of its potential returns per unit of risk. Financial Services Portfolio is currently generating about 0.06 per unit of risk. If you would invest  1,112  in Moderately Servative Balanced on May 10, 2025 and sell it today you would earn a total of  62.00  from holding Moderately Servative Balanced or generate 5.58% return on investment over 90 days.

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

Moderately Servative Balanced  vs.  Financial Services Portfolio

Moderately Conservative

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Moderately Servative Balanced are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Moderately Conservative is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Financial Services

Risk-Adjusted Performance

Mild

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Services Portfolio are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Financial Services is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Moderately Conservative and Financial Services

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

The idea behind Moderately Servative Balanced and Financial Services Portfolio 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.