Correlation Between Rising Rates and Industrials Ultrasector

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

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

Diversification Opportunities for Rising Rates and Industrials Ultrasector

0.54

Correlation Coefficient

Rising Rates  Industrials Ultrasector

Very weak diversification

The 3 months correlation between Rising and Industrials is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Rising Rates Opportunity and Industrials Ultrasector Profun in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrials Ultrasector and Rising Rates 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 Rising Rates Opportunity are associated (or correlated) with Industrials Ultrasector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrials Ultrasector has no effect on the direction of Rising Rates i.e., Rising Rates and Industrials Ultrasector go up and down completely randomly.

Pair Corralation between Rising Rates and Industrials Ultrasector

Assuming the 90 days horizon Rising Rates Opportunity is expected to generate 0.85 times more return on investment than Industrials Ultrasector. However, Rising Rates Opportunity is 1.18 times less risky than Industrials Ultrasector. It trades about 0.21 of its potential returns per unit of risk. Industrials Ultrasector Profund is currently generating about 0.07 per unit of risk. If you would invest  3,711  in Rising Rates Opportunity on September 14, 2024 and sell it today you would earn a total of  571.00  from holding Rising Rates Opportunity or generate 15.39% return on investment over 90 days.

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

Rising Rates Opportunity  vs.  Industrials Ultrasector Profun

Rising Rates Opportunity

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rising Rates Opportunity are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Rising Rates showed solid returns over the last few months and may actually be approaching a breakup point.

Industrials Ultrasector

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Industrials Ultrasector Profund are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Industrials Ultrasector is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Rising Rates and Industrials Ultrasector

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

The idea behind Rising Rates Opportunity and Industrials 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.