Correlation Between Banks Ultrasector and Iaadx

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

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

Diversification Opportunities for Banks Ultrasector and Iaadx

-0.32

Correlation Coefficient

Banks Ultrasector  Iaadx

Very good diversification

The 3 months correlation between Banks and Iaadx is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Banks Ultrasector Profund and Iaadx in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iaadx and Banks 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 Banks Ultrasector Profund are associated (or correlated) with Iaadx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iaadx has no effect on the direction of Banks Ultrasector i.e., Banks Ultrasector and Iaadx go up and down completely randomly.

Pair Corralation between Banks Ultrasector and Iaadx

Assuming the 90 days horizon Banks Ultrasector Profund is expected to generate 11.5 times more return on investment than Iaadx. However, Banks Ultrasector is 11.5 times more volatile than Iaadx. It trades about 0.09 of its potential returns per unit of risk. Iaadx is currently generating about 0.13 per unit of risk. If you would invest  4,680  in Banks Ultrasector Profund on September 29, 2024 and sell it today you would earn a total of  1,414  from holding Banks Ultrasector Profund or generate 30.21% return on investment over 90 days.

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

Banks Ultrasector Profund  vs.  Iaadx

Banks Ultrasector Profund

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Banks Ultrasector Profund are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Banks Ultrasector may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Iaadx

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Banks Ultrasector and Iaadx

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

The idea behind Banks Ultrasector Profund and Iaadx 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.