Correlation Between Financials Ultrasector and Quantitative

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

Diversification Opportunities for Financials Ultrasector and Quantitative

0.24

Correlation Coefficient

Financials Ultrasector  Quantitative

Modest diversification

The 3 months correlation between Financials and Quantitative is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Financials Ultrasector Profund and Quantitative U S in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quantitative U S 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 Quantitative. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quantitative U S has no effect on the direction of Financials Ultrasector i.e., Financials Ultrasector and Quantitative go up and down completely randomly.

Pair Corralation between Financials Ultrasector and Quantitative

Assuming the 90 days horizon Financials Ultrasector Profund is expected to generate 0.58 times more return on investment than Quantitative. However, Financials Ultrasector Profund is 1.71 times less risky than Quantitative. It trades about -0.28 of its potential returns per unit of risk. Quantitative U S is currently generating about -0.32 per unit of risk. If you would invest  4,630  in Financials Ultrasector Profund on September 30, 2024 and sell it today you would lose (405.00) from holding Financials Ultrasector Profund or give up 8.75% of portfolio value over 90 days.

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

Financials Ultrasector Profund  vs.  Quantitative U S

Financials Ultrasector

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Financials Ultrasector Profund are ranked lower than 6 (%) 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 January 2025.

Quantitative U S

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Quantitative U S 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 January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Financials Ultrasector and Quantitative

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

The idea behind Financials Ultrasector Profund and Quantitative U S 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.