Correlation Between Profunds-large Cap and Short-term Municipal

Can any of the company-specific risk be diversified away by investing in both Profunds-large Cap and Short-term Municipal 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 Profunds-large Cap and Short-term Municipal into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Profunds Large Cap Growth and Short Term Municipal Bond, you can compare the effects of market volatilities on Profunds-large Cap and Short-term Municipal 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 Profunds-large Cap with a short position of Short-term Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Profunds-large Cap and Short-term Municipal.

Diversification Opportunities for Profunds-large Cap and Short-term Municipal

0.37

Correlation Coefficient

Profunds-large Cap  Short-term Municipal

Weak diversification

The 3 months correlation between Profunds-large and Short-term is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Profunds Large Cap Growth and Short Term Municipal Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Term Municipal and Profunds-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 Profunds Large Cap Growth are associated (or correlated) with Short-term Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Term Municipal has no effect on the direction of Profunds-large Cap i.e., Profunds-large Cap and Short-term Municipal go up and down completely randomly.

Pair Corralation between Profunds-large Cap and Short-term Municipal

Assuming the 90 days horizon Profunds Large Cap Growth is expected to under-perform the Short-term Municipal. In addition to that, Profunds-large Cap is 14.22 times more volatile than Short Term Municipal Bond. It trades about -0.03 of its total potential returns per unit of risk. Short Term Municipal Bond is currently generating about -0.27 per unit of volatility. If you would invest  971.00  in Short Term Municipal Bond on October 10, 2024 and sell it today you would lose (5.00) from holding Short Term Municipal Bond or give up 0.51% of portfolio value over 90 days.

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

Profunds Large Cap Growth  vs.  Short Term Municipal Bond

Profunds Large Cap

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Profunds Large Cap Growth are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Profunds-large Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Short Term Municipal

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Profunds-large Cap and Short-term Municipal

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

The idea behind Profunds Large Cap Growth and Short Term Municipal Bond 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.