Correlation Between Financials Ultrasector and Pace Large

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

Diversification Opportunities for Financials Ultrasector and Pace Large

0.89

Correlation Coefficient

Financials Ultrasector  Pace Large

Very poor diversification

The 3 months correlation between Financials and Pace is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Financials Ultrasector Profund and Pace Large Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pace Large Value 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 Pace Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pace Large Value has no effect on the direction of Financials Ultrasector i.e., Financials Ultrasector and Pace Large go up and down completely randomly.

Pair Corralation between Financials Ultrasector and Pace Large

Assuming the 90 days horizon Financials Ultrasector Profund is expected to generate 1.9 times more return on investment than Pace Large. However, Financials Ultrasector is 1.9 times more volatile than Pace Large Value. It trades about 0.09 of its potential returns per unit of risk. Pace Large Value is currently generating about 0.08 per unit of risk. If you would invest  2,614  in Financials Ultrasector Profund on September 4, 2024 and sell it today you would earn a total of  2,016  from holding Financials Ultrasector Profund or generate 77.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.8%
Values	Daily Returns

Financials Ultrasector Profund  vs.  Pace Large Value

Financials Ultrasector

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Financials Ultrasector Profund are ranked lower than 13 (%) 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.

Pace Large Value

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pace Large Value are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Pace Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Financials Ultrasector and Pace Large

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

The idea behind Financials Ultrasector Profund and Pace Large Value 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.