Correlation Between Financials Ultrasector and Payden Limited

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

Diversification Opportunities for Financials Ultrasector and Payden Limited

0.82

Correlation Coefficient

Financials Ultrasector  Payden Limited

Very poor diversification

The 3 months correlation between Financials and Payden is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Financials Ultrasector Profund and Payden Limited Maturity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Payden Limited Maturity 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 Payden Limited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Payden Limited Maturity has no effect on the direction of Financials Ultrasector i.e., Financials Ultrasector and Payden Limited go up and down completely randomly.

Pair Corralation between Financials Ultrasector and Payden Limited

Assuming the 90 days horizon Financials Ultrasector Profund is expected to generate 17.87 times more return on investment than Payden Limited. However, Financials Ultrasector is 17.87 times more volatile than Payden Limited Maturity. It trades about 0.15 of its potential returns per unit of risk. Payden Limited Maturity is currently generating about 0.17 per unit of risk. If you would invest  3,836  in Financials Ultrasector Profund on September 14, 2024 and sell it today you would earn a total of  586.00  from holding Financials Ultrasector Profund or generate 15.28% return on investment over 90 days.

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

Financials Ultrasector Profund  vs.  Payden Limited Maturity

Financials Ultrasector

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Financials Ultrasector Profund are ranked lower than 11 (%) 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.

Payden Limited Maturity

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Payden Limited Maturity are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Payden Limited 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 Payden Limited

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

The idea behind Financials Ultrasector Profund and Payden Limited Maturity 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.