Correlation Between Consumer Services and Internet Ultrasector

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

Diversification Opportunities for Consumer Services and Internet Ultrasector

0.89

Correlation Coefficient

Consumer Services  Internet Ultrasector

Very poor diversification

The 3 months correlation between Consumer and Internet is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Services Ultrasector and Internet Ultrasector Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Internet Ultrasector 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 Internet Ultrasector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Internet Ultrasector has no effect on the direction of Consumer Services i.e., Consumer Services and Internet Ultrasector go up and down completely randomly.

Pair Corralation between Consumer Services and Internet Ultrasector

Assuming the 90 days horizon Consumer Services Ultrasector is expected to under-perform the Internet Ultrasector. But the mutual fund apears to be less risky and, when comparing its historical volatility, Consumer Services Ultrasector is 1.1 times less risky than Internet Ultrasector. The mutual fund trades about -0.16 of its potential returns per unit of risk. The Internet Ultrasector Profund is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  3,584  in Internet Ultrasector Profund on December 30, 2024 and sell it today you would lose (522.00) from holding Internet Ultrasector Profund or give up 14.56% of portfolio value over 90 days.

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

Consumer Services Ultrasector  vs.  Internet Ultrasector Profund

Consumer Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days Consumer Services Ultrasector 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 April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Internet Ultrasector

Risk-Adjusted Performance

Very Weak

Over the last 90 days Internet 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 basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Consumer Services and Internet Ultrasector

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

The idea behind Consumer Services Ultrasector and Internet Ultrasector Profund 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.