Correlation Between Financials Ultrasector and Utilities Ultrasector

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

Diversification Opportunities for Financials Ultrasector and Utilities Ultrasector

-0.06

Correlation Coefficient

Financials Ultrasector  Utilities Ultrasector

Good diversification

The 3 months correlation between Financials and Utilities is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Financials Ultrasector Profund and Utilities Ultrasector Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Utilities Ultrasector 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 Utilities Ultrasector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Utilities Ultrasector has no effect on the direction of Financials Ultrasector i.e., Financials Ultrasector and Utilities Ultrasector go up and down completely randomly.

Pair Corralation between Financials Ultrasector and Utilities Ultrasector

Assuming the 90 days horizon Financials Ultrasector Profund is expected to under-perform the Utilities Ultrasector. But the mutual fund apears to be less risky and, when comparing its historical volatility, Financials Ultrasector Profund is 1.29 times less risky than Utilities Ultrasector. The mutual fund trades about -0.42 of its potential returns per unit of risk. The Utilities Ultrasector Profund is currently generating about -0.3 of returns per unit of risk over similar time horizon. If you would invest  7,742  in Utilities Ultrasector Profund on September 25, 2024 and sell it today you would lose (722.00) from holding Utilities Ultrasector Profund or give up 9.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Financials Ultrasector Profund  vs.  Utilities Ultrasector Profund

Financials Ultrasector

Risk-Adjusted Performance

6 of 100

Modest

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.

Utilities Ultrasector

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Utilities Ultrasector Profund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Financials Ultrasector and Utilities Ultrasector

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

The idea behind Financials Ultrasector Profund and Utilities Ultrasector Profund 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.