Correlation Between Consumer Services and Basic Materials
Can any of the company-specific risk be diversified away by investing in both Consumer Services and Basic Materials 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 Consumer Services and Basic Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Consumer Services Ultrasector and Basic Materials Ultrasector, you can compare the effects of market volatilities on Consumer Services and Basic Materials 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 Consumer Services with a short position of Basic Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consumer Services and Basic Materials.
Diversification Opportunities for Consumer Services and Basic Materials
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Consumer and Basic is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Services Ultrasector and Basic Materials Ultrasector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Basic Materials Ultr and Consumer 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 Consumer Services Ultrasector are associated (or correlated) with Basic Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Basic Materials Ultr has no effect on the direction of Consumer Services i.e., Consumer Services and Basic Materials go up and down completely randomly.
Pair Corralation between Consumer Services and Basic Materials
Assuming the 90 days horizon Consumer Services Ultrasector is expected to generate 1.04 times more return on investment than Basic Materials. However, Consumer Services is 1.04 times more volatile than Basic Materials Ultrasector. It trades about 0.06 of its potential returns per unit of risk. Basic Materials Ultrasector is currently generating about 0.06 per unit of risk. If you would invest 5,453 in Consumer Services Ultrasector on May 24, 2025 and sell it today you would earn a total of 290.00 from holding Consumer Services Ultrasector or generate 5.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Consumer Services Ultrasector vs. Basic Materials Ultrasector
Performance |
| Timeline |
| Consumer Services |
| Basic Materials Ultr |
Consumer Services and Basic Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Consumer Services and Basic Materials
The main advantage of trading using opposite Consumer Services and Basic Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Consumer Services position performs unexpectedly, Basic Materials 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 Basic Materials will offset losses from the drop in Basic Materials' long position.The idea behind Consumer Services Ultrasector and Basic Materials Ultrasector 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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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 CEOs Directory module to screen CEOs from public companies around the world.
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