Correlation Between Financials Ultrasector and Nasdaq-100(r)

Can any of the company-specific risk be diversified away by investing in both Financials Ultrasector and Nasdaq-100(r) 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 Nasdaq-100(r) 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 Nasdaq 100 2x Strategy, you can compare the effects of market volatilities on Financials Ultrasector and Nasdaq-100(r) 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 Nasdaq-100(r). Check out your portfolio center. Please also check ongoing floating volatility patterns of Financials Ultrasector and Nasdaq-100(r).

Diversification Opportunities for Financials Ultrasector and Nasdaq-100(r)

0.56

Correlation Coefficient

Financials Ultrasector  Nasdaq-100(r)

Very weak diversification

The 3 months correlation between Financials and Nasdaq-100(r) is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Financials Ultrasector Profund and Nasdaq 100 2x Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq 100 2x 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 Nasdaq-100(r). Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq 100 2x has no effect on the direction of Financials Ultrasector i.e., Financials Ultrasector and Nasdaq-100(r) go up and down completely randomly.

Pair Corralation between Financials Ultrasector and Nasdaq-100(r)

Assuming the 90 days horizon Financials Ultrasector Profund is expected to generate 0.6 times more return on investment than Nasdaq-100(r). However, Financials Ultrasector Profund is 1.67 times less risky than Nasdaq-100(r). It trades about 0.01 of its potential returns per unit of risk. Nasdaq 100 2x Strategy is currently generating about -0.11 per unit of risk. If you would invest  3,492  in Financials Ultrasector Profund on December 26, 2024 and sell it today you would earn a total of  22.00  from holding Financials Ultrasector Profund or generate 0.63% 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.  Nasdaq 100 2x Strategy

Financials Ultrasector

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Financials Ultrasector Profund are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. 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.

Nasdaq 100 2x

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nasdaq 100 2x Strategy has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Financials Ultrasector and Nasdaq-100(r)

The main advantage of trading using opposite Financials Ultrasector and Nasdaq-100(r) positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financials Ultrasector position performs unexpectedly, Nasdaq-100(r) 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 Nasdaq-100(r) will offset losses from the drop in Nasdaq-100(r)'s long position.

The idea behind Financials Ultrasector Profund and Nasdaq 100 2x Strategy 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.