Correlation Between Large-cap Growth and Technology Ultrasector

Can any of the company-specific risk be diversified away by investing in both Large-cap Growth and Technology 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 Growth and Technology 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 Technology Ultrasector Profund, you can compare the effects of market volatilities on Large-cap Growth and Technology 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 Growth with a short position of Technology Ultrasector. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large-cap Growth and Technology Ultrasector.

Diversification Opportunities for Large-cap Growth and Technology Ultrasector

0.9

Correlation Coefficient

Large-cap Growth  Technology Ultrasector

Almost no diversification

The 3 months correlation between Large-cap and Technology is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Growth Profund and Technology Ultrasector Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Technology Ultrasector and Large-cap Growth 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 Technology Ultrasector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Technology Ultrasector has no effect on the direction of Large-cap Growth i.e., Large-cap Growth and Technology Ultrasector go up and down completely randomly.

Pair Corralation between Large-cap Growth and Technology Ultrasector

Assuming the 90 days horizon Large Cap Growth Profund is expected to generate 0.58 times more return on investment than Technology Ultrasector. However, Large Cap Growth Profund is 1.72 times less risky than Technology Ultrasector. It trades about -0.11 of its potential returns per unit of risk. Technology Ultrasector Profund is currently generating about -0.12 per unit of risk. If you would invest  4,594  in Large Cap Growth Profund on December 30, 2024 and sell it today you would lose (456.00) from holding Large Cap Growth Profund or give up 9.93% of portfolio value over 90 days.

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

Large Cap Growth Profund  vs.  Technology Ultrasector Profund

Large Cap Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Large Cap Growth 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.

Technology Ultrasector

Risk-Adjusted Performance

Very Weak

Over the last 90 days Technology Ultrasector Profund 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 forward 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 Large-cap Growth and Technology Ultrasector

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

The idea behind Large Cap Growth Profund and Technology 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.

Check out your portfolio center.

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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.