Correlation Between Financials Ultrasector and Nationwide Bond

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

Diversification Opportunities for Financials Ultrasector and Nationwide Bond

0.37

Correlation Coefficient

Financials Ultrasector  Nationwide Bond

Weak diversification

The 3 months correlation between Financials and Nationwide is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Financials Ultrasector Profund and Nationwide Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nationwide Bond 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 Nationwide Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nationwide Bond has no effect on the direction of Financials Ultrasector i.e., Financials Ultrasector and Nationwide Bond go up and down completely randomly.

Pair Corralation between Financials Ultrasector and Nationwide Bond

Assuming the 90 days horizon Financials Ultrasector Profund is expected to under-perform the Nationwide Bond. In addition to that, Financials Ultrasector is 6.15 times more volatile than Nationwide Bond Fund. It trades about -0.18 of its total potential returns per unit of risk. Nationwide Bond Fund is currently generating about -0.49 per unit of volatility. If you would invest  825.00  in Nationwide Bond Fund on October 11, 2024 and sell it today you would lose (20.00) from holding Nationwide Bond Fund or give up 2.42% 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.  Nationwide Bond Fund

Financials Ultrasector

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Financials Ultrasector Profund are ranked lower than 3 (%) 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.

Nationwide Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nationwide Bond Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental drivers, Nationwide Bond 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 Nationwide Bond

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

The idea behind Financials Ultrasector Profund and Nationwide Bond 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.