Correlation Between Inverse Sp and Ultrashort Japan

Can any of the company-specific risk be diversified away by investing in both Inverse Sp and Ultrashort Japan 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 Inverse Sp and Ultrashort Japan into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Inverse Sp 500 and Ultrashort Japan Profund, you can compare the effects of market volatilities on Inverse Sp and Ultrashort Japan 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 Inverse Sp with a short position of Ultrashort Japan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inverse Sp and Ultrashort Japan.

Diversification Opportunities for Inverse Sp and Ultrashort Japan

0.8

Correlation Coefficient

Inverse Sp  Ultrashort Japan

Very poor diversification

The 3 months correlation between Inverse and Ultrashort is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Inverse Sp 500 and Ultrashort Japan Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultrashort Japan Profund and Inverse Sp 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 Inverse Sp 500 are associated (or correlated) with Ultrashort Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultrashort Japan Profund has no effect on the direction of Inverse Sp i.e., Inverse Sp and Ultrashort Japan go up and down completely randomly.

Pair Corralation between Inverse Sp and Ultrashort Japan

Assuming the 90 days horizon Inverse Sp is expected to generate 1.48 times less return on investment than Ultrashort Japan. But when comparing it to its historical volatility, Inverse Sp 500 is 2.13 times less risky than Ultrashort Japan. It trades about 0.11 of its potential returns per unit of risk. Ultrashort Japan Profund is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3,900  in Ultrashort Japan Profund on December 30, 2024 and sell it today you would earn a total of  352.00  from holding Ultrashort Japan Profund or generate 9.03% return on investment over 90 days.

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

Inverse Sp 500  vs.  Ultrashort Japan Profund

Inverse Sp 500

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Inverse Sp 500 are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Inverse Sp may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Ultrashort Japan Profund

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ultrashort Japan Profund are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Ultrashort Japan may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Inverse Sp and Ultrashort Japan

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

The idea behind Inverse Sp 500 and Ultrashort Japan 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.