Correlation Between Mid Cap and Banks Ultrasector

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

Diversification Opportunities for Mid Cap and Banks Ultrasector

0.94

Correlation Coefficient

Mid Cap  Banks Ultrasector

Almost no diversification

The 3 months correlation between Mid and BANKS is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Value 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 Mid 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 Mid Cap Value 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 Mid Cap i.e., Mid Cap and Banks Ultrasector go up and down completely randomly.

Pair Corralation between Mid Cap and Banks Ultrasector

Assuming the 90 days horizon Mid Cap Value Profund is expected to generate 0.4 times more return on investment than Banks Ultrasector. However, Mid Cap Value Profund is 2.47 times less risky than Banks Ultrasector. It trades about -0.03 of its potential returns per unit of risk. Banks Ultrasector Profund is currently generating about -0.06 per unit of risk. If you would invest  11,258  in Mid Cap Value Profund on December 11, 2024 and sell it today you would lose (149.00) from holding Mid Cap Value Profund or give up 1.32% of portfolio value over 90 days.

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

Mid Cap Value Profund  vs.  Banks Ultrasector Profund

Mid Cap Value

Risk-Adjusted Performance

Very Weak

Over the last 90 days Mid Cap Value 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.

Banks Ultrasector Profund

Risk-Adjusted Performance

Very Weak

Over the last 90 days Banks 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 Mid Cap and Banks Ultrasector

The main advantage of trading using opposite Mid Cap and Banks Ultrasector positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mid 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 Mid Cap Value 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.