Correlation Between Rising Rates and Ultralatin America

Can any of the company-specific risk be diversified away by investing in both Rising Rates and Ultralatin America 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 Ultralatin America 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 Ultralatin America Profund, you can compare the effects of market volatilities on Rising Rates and Ultralatin America 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 Ultralatin America. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rising Rates and Ultralatin America.

Diversification Opportunities for Rising Rates and Ultralatin America

-0.81

Correlation Coefficient

Rising Rates  Ultralatin America

Pay attention - limited upside

The 3 months correlation between Rising and Ultralatin is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Rising Rates Opportunity and Ultralatin America Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultralatin America 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 Ultralatin America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultralatin America has no effect on the direction of Rising Rates i.e., Rising Rates and Ultralatin America go up and down completely randomly.

Pair Corralation between Rising Rates and Ultralatin America

Assuming the 90 days horizon Rising Rates Opportunity is expected to generate 0.5 times more return on investment than Ultralatin America. However, Rising Rates Opportunity is 1.99 times less risky than Ultralatin America. It trades about 0.18 of its potential returns per unit of risk. Ultralatin America Profund is currently generating about -0.17 per unit of risk. If you would invest  3,881  in Rising Rates Opportunity on September 25, 2024 and sell it today you would earn a total of  530.00  from holding Rising Rates Opportunity or generate 13.66% return on investment over 90 days.

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

Rising Rates Opportunity  vs.  Ultralatin America Profund

Rising Rates Opportunity

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rising Rates Opportunity are ranked lower than 14 (%) 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.

Ultralatin America

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ultralatin America 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 January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Rising Rates and Ultralatin America

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

The idea behind Rising Rates Opportunity and Ultralatin America 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.