Correlation Between Sierra E and Internet Ultrasector

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

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

Diversification Opportunities for Sierra E and Internet Ultrasector

0.16

Correlation Coefficient

Sierra E  Internet Ultrasector

Average diversification

The 3 months correlation between Sierra and Internet is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Sierra E Retirement and Internet Ultrasector Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Internet Ultrasector and Sierra E 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 Sierra E Retirement are associated (or correlated) with Internet Ultrasector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Internet Ultrasector has no effect on the direction of Sierra E i.e., Sierra E and Internet Ultrasector go up and down completely randomly.

Pair Corralation between Sierra E and Internet Ultrasector

Assuming the 90 days horizon Sierra E is expected to generate 6.79 times less return on investment than Internet Ultrasector. But when comparing it to its historical volatility, Sierra E Retirement is 5.66 times less risky than Internet Ultrasector. It trades about 0.07 of its potential returns per unit of risk. Internet Ultrasector Profund is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,417  in Internet Ultrasector Profund on October 3, 2024 and sell it today you would earn a total of  2,148  from holding Internet Ultrasector Profund or generate 62.86% return on investment over 90 days.

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

Sierra E Retirement  vs.  Internet Ultrasector Profund

Sierra E Retirement

Risk-Adjusted Performance

0 of 100

Very Weak

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

Internet Ultrasector

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Internet Ultrasector Profund are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Internet Ultrasector showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sierra E and Internet Ultrasector

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

The idea behind Sierra E Retirement and Internet 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.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.