Correlation Between Small Company and Technology Ultrasector

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

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

Diversification Opportunities for Small Company and Technology Ultrasector

0.47

Correlation Coefficient

Small Company  Technology Ultrasector

Very weak diversification

The 3 months correlation between Small and Technology is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Small Pany Growth and Technology Ultrasector Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Technology Ultrasector and Small Company 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 Small Pany Growth 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 Small Company i.e., Small Company and Technology Ultrasector go up and down completely randomly.

Pair Corralation between Small Company and Technology Ultrasector

Assuming the 90 days horizon Small Pany Growth is expected to under-perform the Technology Ultrasector. But the mutual fund apears to be less risky and, when comparing its historical volatility, Small Pany Growth is 1.09 times less risky than Technology Ultrasector. The mutual fund trades about -0.25 of its potential returns per unit of risk. The Technology Ultrasector Profund is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  2,656  in Technology Ultrasector Profund on December 4, 2024 and sell it today you would lose (170.00) from holding Technology Ultrasector Profund or give up 6.4% of portfolio value over 90 days.

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

Small Pany Growth  vs.  Technology Ultrasector Profund

Small Pany Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Pany Growth 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 technical and fundamental 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.

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 basic 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 Small Company and Technology Ultrasector

The main advantage of trading using opposite Small Company and Technology Ultrasector positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Company 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 Small Pany Growth 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.

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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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.