Correlation Between Ultra Small and Managed Volatility

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

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

Diversification Opportunities for Ultra Small and Managed Volatility

0.83

Correlation Coefficient

Ultra Small  Managed Volatility

Very poor diversification

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

Pair Corralation between Ultra Small and Managed Volatility

Assuming the 90 days horizon Ultra Small Pany Fund is expected to generate 0.78 times more return on investment than Managed Volatility. However, Ultra Small Pany Fund is 1.29 times less risky than Managed Volatility. It trades about 0.05 of its potential returns per unit of risk. Managed Volatility Fund is currently generating about -0.02 per unit of risk. If you would invest  2,443  in Ultra Small Pany Fund on September 25, 2024 and sell it today you would earn a total of  793.00  from holding Ultra Small Pany Fund or generate 32.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.79%
Values	Daily Returns

Ultra Small Pany Fund  vs.  Managed Volatility Fund

Ultra Small Pany

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Small Pany Fund are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Ultra Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Managed Volatility

Risk-Adjusted Performance

0 of 100

Strong

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

Pair Trading with Ultra Small and Managed Volatility

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

The idea behind Ultra Small Pany Fund and Managed Volatility 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.

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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.