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 Growth, 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

0.49

Correlation Coefficient

Financials Ultrasector  Pace Large

Very weak diversification

The 3 months correlation between Financials and Pace is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Financials Ultrasector Profund and Pace Large Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pace Large Growth 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 Growth 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 1.37 times more return on investment than Pace Large. However, Financials Ultrasector is 1.37 times more volatile than Pace Large Growth. It trades about 0.01 of its potential returns per unit of risk. Pace Large Growth is currently generating about -0.1 per unit of risk. If you would invest  3,421  in Financials Ultrasector Profund on December 21, 2024 and sell it today you would earn a total of  11.00  from holding Financials Ultrasector Profund or generate 0.32% return on investment over 90 days.

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

Financials Ultrasector Profund  vs.  Pace Large Growth

Financials Ultrasector

Risk-Adjusted Performance

Very Weak

Over the last 90 days Financials Ultrasector Profund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Financials Ultrasector is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pace Large Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pace Large Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic 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 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 Growth 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.