Correlation Between Large Cap and Banks Ultrasector

Can any of the company-specific risk be diversified away by investing in both Large Cap and Banks 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 Large Cap and Banks Ultrasector into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Large Cap Growth Profund and Banks Ultrasector Profund, you can compare the effects of market volatilities on Large Cap and Banks 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 Large Cap with a short position of Banks Ultrasector. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Cap and Banks Ultrasector.

Diversification Opportunities for Large Cap and Banks Ultrasector

0.81

Correlation Coefficient

Large Cap  Banks Ultrasector

Very poor diversification

The 3 months correlation between Large and Banks is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Growth Profund and Banks Ultrasector Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banks Ultrasector Profund and Large Cap 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 Large Cap Growth Profund are associated (or correlated) with Banks Ultrasector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banks Ultrasector Profund has no effect on the direction of Large Cap i.e., Large Cap and Banks Ultrasector go up and down completely randomly.

Pair Corralation between Large Cap and Banks Ultrasector

Assuming the 90 days horizon Large Cap is expected to generate 1.03 times less return on investment than Banks Ultrasector. But when comparing it to its historical volatility, Large Cap Growth Profund is 2.75 times less risky than Banks Ultrasector. It trades about 0.12 of its potential returns per unit of risk. Banks Ultrasector Profund is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4,280  in Banks Ultrasector Profund on September 20, 2024 and sell it today you would earn a total of  2,183  from holding Banks Ultrasector Profund or generate 51.0% return on investment over 90 days.

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

Large Cap Growth Profund  vs.  Banks Ultrasector Profund

Large Cap Growth

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap Growth Profund are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Large Cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Banks Ultrasector Profund

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Banks Ultrasector Profund are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Banks Ultrasector showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Large Cap and Banks Ultrasector

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

The idea behind Large Cap Growth Profund and Banks 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.