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

0.92

Correlation Coefficient

Mid Cap  Banks Ultrasector

Almost no diversification

The 3 months correlation between Mid and Banks is 0.92. 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 is expected to generate 2.72 times less return on investment than Banks Ultrasector. But when comparing it to its historical volatility, Mid Cap Value Profund is 2.44 times less risky than Banks Ultrasector. It trades about 0.04 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	Very Strong
Accuracy	100.0%
Values	Daily Returns

Mid Cap Value Profund  vs.  Banks Ultrasector Profund

Mid Cap Value

Risk-Adjusted Performance

0 of 100

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 fairly strong basic indicators, Mid Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.