Correlation Between Financials Ultrasector and Baird Ultra

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

Diversification Opportunities for Financials Ultrasector and Baird Ultra

0.72

Correlation Coefficient

Financials Ultrasector  Baird Ultra

Poor diversification

The 3 months correlation between Financials and Baird is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Financials Ultrasector Profund and Baird Ultra Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baird Ultra Short 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 Baird Ultra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baird Ultra Short has no effect on the direction of Financials Ultrasector i.e., Financials Ultrasector and Baird Ultra go up and down completely randomly.

Pair Corralation between Financials Ultrasector and Baird Ultra

Assuming the 90 days horizon Financials Ultrasector Profund is expected to under-perform the Baird Ultra. In addition to that, Financials Ultrasector is 10.89 times more volatile than Baird Ultra Short. It trades about -0.17 of its total potential returns per unit of risk. Baird Ultra Short is currently generating about -0.11 per unit of volatility. If you would invest  1,014  in Baird Ultra Short on October 9, 2024 and sell it today you would lose (3.00) from holding Baird Ultra Short or give up 0.3% 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.  Baird Ultra Short

Financials Ultrasector

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Financials Ultrasector Profund are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Financials Ultrasector may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Baird Ultra Short

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Baird Ultra Short are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Baird Ultra 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 Baird Ultra

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

The idea behind Financials Ultrasector Profund and Baird Ultra Short 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.