Correlation Between Financials Ultrasector and Scharf Balanced

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

Diversification Opportunities for Financials Ultrasector and Scharf Balanced

0.66

Correlation Coefficient

Financials Ultrasector  Scharf Balanced

Poor diversification

The 3 months correlation between Financials and Scharf is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Financials Ultrasector Profund and Scharf Balanced Opportunity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scharf Balanced Oppo 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 Scharf Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scharf Balanced Oppo has no effect on the direction of Financials Ultrasector i.e., Financials Ultrasector and Scharf Balanced go up and down completely randomly.

Pair Corralation between Financials Ultrasector and Scharf Balanced

Assuming the 90 days horizon Financials Ultrasector is expected to generate 1.3 times less return on investment than Scharf Balanced. In addition to that, Financials Ultrasector is 3.11 times more volatile than Scharf Balanced Opportunity. It trades about 0.03 of its total potential returns per unit of risk. Scharf Balanced Opportunity is currently generating about 0.12 per unit of volatility. If you would invest  3,485  in Scharf Balanced Opportunity on December 30, 2024 and sell it today you would earn a total of  136.00  from holding Scharf Balanced Opportunity or generate 3.9% return on investment over 90 days.

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

Financials Ultrasector Profund  vs.  Scharf Balanced Opportunity

Financials Ultrasector

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Financials Ultrasector Profund are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Financials Ultrasector is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Scharf Balanced Oppo

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Scharf Balanced Opportunity are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Scharf Balanced 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 Scharf Balanced

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

The idea behind Financials Ultrasector Profund and Scharf Balanced Opportunity 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.