Correlation Between Nasdaq-100 Fund and Ultra Fund

Can any of the company-specific risk be diversified away by investing in both Nasdaq-100 Fund and Ultra Fund 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 Nasdaq-100 Fund and Ultra Fund into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nasdaq 100 Fund Class and Ultra Fund R6, you can compare the effects of market volatilities on Nasdaq-100 Fund and Ultra Fund 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 Nasdaq-100 Fund with a short position of Ultra Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq-100 Fund and Ultra Fund.

Diversification Opportunities for Nasdaq-100 Fund and Ultra Fund

0.6

Correlation Coefficient

Nasdaq-100 Fund  Ultra Fund

Poor diversification

The 3 months correlation between Nasdaq-100 and Ultra is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 Fund Class and Ultra Fund R6 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultra Fund R6 and Nasdaq-100 Fund 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 Nasdaq 100 Fund Class are associated (or correlated) with Ultra Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultra Fund R6 has no effect on the direction of Nasdaq-100 Fund i.e., Nasdaq-100 Fund and Ultra Fund go up and down completely randomly.

Pair Corralation between Nasdaq-100 Fund and Ultra Fund

Assuming the 90 days horizon Nasdaq 100 Fund Class is expected to under-perform the Ultra Fund. In addition to that, Nasdaq-100 Fund is 1.45 times more volatile than Ultra Fund R6. It trades about -0.1 of its total potential returns per unit of risk. Ultra Fund R6 is currently generating about -0.05 per unit of volatility. If you would invest  10,146  in Ultra Fund R6 on December 1, 2024 and sell it today you would lose (382.00) from holding Ultra Fund R6 or give up 3.77% of portfolio value over 90 days.

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

Nasdaq 100 Fund Class  vs.  Ultra Fund R6

Nasdaq 100 Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nasdaq 100 Fund Class 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.

Ultra Fund R6

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ultra Fund R6 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Ultra Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Nasdaq-100 Fund and Ultra Fund

The main advantage of trading using opposite Nasdaq-100 Fund and Ultra Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq-100 Fund position performs unexpectedly, Ultra Fund 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 Ultra Fund will offset losses from the drop in Ultra Fund's long position.

The idea behind Nasdaq 100 Fund Class and Ultra Fund R6 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.