Correlation Between Red Oak and Biotechnology Ultrasector

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

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

Diversification Opportunities for Red Oak and Biotechnology Ultrasector

0.69

Correlation Coefficient

Red Oak  Biotechnology Ultrasector

Poor diversification

The 3 months correlation between Red and Biotechnology is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Red Oak Technology and Biotechnology Ultrasector Prof in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biotechnology Ultrasector and Red Oak 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 Red Oak Technology are associated (or correlated) with Biotechnology Ultrasector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biotechnology Ultrasector has no effect on the direction of Red Oak i.e., Red Oak and Biotechnology Ultrasector go up and down completely randomly.

Pair Corralation between Red Oak and Biotechnology Ultrasector

Assuming the 90 days horizon Red Oak Technology is expected to under-perform the Biotechnology Ultrasector. But the mutual fund apears to be less risky and, when comparing its historical volatility, Red Oak Technology is 1.45 times less risky than Biotechnology Ultrasector. The mutual fund trades about -0.11 of its potential returns per unit of risk. The Biotechnology Ultrasector Profund is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  4,544  in Biotechnology Ultrasector Profund on December 30, 2024 and sell it today you would lose (464.00) from holding Biotechnology Ultrasector Profund or give up 10.21% of portfolio value over 90 days.

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

Red Oak Technology  vs.  Biotechnology Ultrasector Prof

Red Oak Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Red Oak Technology has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Biotechnology Ultrasector

Risk-Adjusted Performance

Very Weak

Over the last 90 days Biotechnology Ultrasector 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.

Pair Trading with Red Oak and Biotechnology Ultrasector

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

The idea behind Red Oak Technology and Biotechnology 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.