Correlation Between Financials Ultrasector and American Mutual

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

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

Diversification Opportunities for Financials Ultrasector and American Mutual

0.7

Correlation Coefficient

Financials Ultrasector  American Mutual

Poor diversification

The 3 months correlation between Financials and American is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Financials Ultrasector Profund and American Mutual Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Mutual and Financials 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 Financials Ultrasector Profund are associated (or correlated) with American Mutual. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Mutual has no effect on the direction of Financials Ultrasector i.e., Financials Ultrasector and American Mutual go up and down completely randomly.

Pair Corralation between Financials Ultrasector and American Mutual

Assuming the 90 days horizon Financials Ultrasector Profund is expected to generate 2.1 times more return on investment than American Mutual. However, Financials Ultrasector is 2.1 times more volatile than American Mutual Fund. It trades about -0.02 of its potential returns per unit of risk. American Mutual Fund is currently generating about -0.09 per unit of risk. If you would invest  4,428  in Financials Ultrasector Profund on September 13, 2024 and sell it today you would lose (23.00) from holding Financials Ultrasector Profund or give up 0.52% of portfolio value over 90 days.

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

Financials Ultrasector Profund  vs.  American Mutual Fund

Financials Ultrasector

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Financials Ultrasector Profund are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Financials Ultrasector showed solid returns over the last few months and may actually be approaching a breakup point.

American Mutual

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American Mutual Fund are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, American Mutual is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Financials Ultrasector and American Mutual

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

The idea behind Financials Ultrasector Profund and American Mutual 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.