Correlation Between Biotechnology Ultrasector and Small Company

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

By analyzing existing cross correlation between Biotechnology Ultrasector Profund and Small Company Stock Fund, you can compare the effects of market volatilities on Biotechnology Ultrasector and Small Company 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 Biotechnology Ultrasector with a short position of Small Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Biotechnology Ultrasector and Small Company.

Diversification Opportunities for Biotechnology Ultrasector and Small Company

0.46

Correlation Coefficient

Biotechnology Ultrasector  Small Company

Very weak diversification

The 3 months correlation between Biotechnology and Small is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Biotechnology Ultrasector Prof and Small Company Stock Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Stock Fund and Biotechnology Ultrasector 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 Biotechnology Ultrasector Profund are associated (or correlated) with Small Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Stock Fund has no effect on the direction of Biotechnology Ultrasector i.e., Biotechnology Ultrasector and Small Company go up and down completely randomly.

Pair Corralation between Biotechnology Ultrasector and Small Company

Assuming the 90 days horizon Biotechnology Ultrasector Profund is expected to under-perform the Small Company. In addition to that, Biotechnology Ultrasector is 4.11 times more volatile than Small Company Stock Fund. It trades about -0.28 of its total potential returns per unit of risk. Small Company Stock Fund is currently generating about -0.36 per unit of volatility. If you would invest  2,936  in Small Company Stock Fund on October 7, 2024 and sell it today you would lose (287.00) from holding Small Company Stock Fund or give up 9.78% of portfolio value over 90 days.

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

Biotechnology Ultrasector Prof  vs.  Small Company Stock Fund

Biotechnology Ultrasector

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Biotechnology Ultrasector Profund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Small Stock Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Company Stock Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Small Company is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Biotechnology Ultrasector and Small Company

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

The idea behind Biotechnology Ultrasector Profund and Small Company Stock Fund 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.