Correlation Between Banks Ultrasector and Rational Defensive

Can any of the company-specific risk be diversified away by investing in both Banks Ultrasector and Rational Defensive 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 Rational Defensive 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 Rational Defensive Growth, you can compare the effects of market volatilities on Banks Ultrasector and Rational Defensive 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 Rational Defensive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banks Ultrasector and Rational Defensive.

Diversification Opportunities for Banks Ultrasector and Rational Defensive

0.83

Correlation Coefficient

Banks Ultrasector  Rational Defensive

Very poor diversification

The 3 months correlation between Banks and Rational is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Banks Ultrasector Profund and Rational Defensive Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rational Defensive Growth 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 Rational Defensive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rational Defensive Growth has no effect on the direction of Banks Ultrasector i.e., Banks Ultrasector and Rational Defensive go up and down completely randomly.

Pair Corralation between Banks Ultrasector and Rational Defensive

Assuming the 90 days horizon Banks Ultrasector Profund is expected to generate 3.4 times more return on investment than Rational Defensive. However, Banks Ultrasector is 3.4 times more volatile than Rational Defensive Growth. It trades about 0.13 of its potential returns per unit of risk. Rational Defensive Growth is currently generating about 0.26 per unit of risk. If you would invest  5,076  in Banks Ultrasector Profund on September 4, 2024 and sell it today you would earn a total of  1,230  from holding Banks Ultrasector Profund or generate 24.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Banks Ultrasector Profund  vs.  Rational Defensive Growth

Banks Ultrasector Profund

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Banks Ultrasector Profund are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Banks Ultrasector showed solid returns over the last few months and may actually be approaching a breakup point.

Rational Defensive Growth

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rational Defensive Growth are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Rational Defensive showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Banks Ultrasector and Rational Defensive

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

The idea behind Banks Ultrasector Profund and Rational Defensive Growth 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.