Correlation Between Short Real and Financials Ultrasector

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

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

Diversification Opportunities for Short Real and Financials Ultrasector

0.06

Correlation Coefficient

Short Real  Financials Ultrasector

Significant diversification

The 3 months correlation between Short and Financials is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Short Real Estate and Financials Ultrasector Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financials Ultrasector and Short Real 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 Short Real Estate are associated (or correlated) with Financials Ultrasector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financials Ultrasector has no effect on the direction of Short Real i.e., Short Real and Financials Ultrasector go up and down completely randomly.

Pair Corralation between Short Real and Financials Ultrasector

Assuming the 90 days horizon Short Real Estate is expected to under-perform the Financials Ultrasector. But the mutual fund apears to be less risky and, when comparing its historical volatility, Short Real Estate is 1.19 times less risky than Financials Ultrasector. The mutual fund trades about -0.01 of its potential returns per unit of risk. The Financials Ultrasector Profund is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,111  in Financials Ultrasector Profund on September 30, 2024 and sell it today you would earn a total of  1,270  from holding Financials Ultrasector Profund or generate 60.16% return on investment over 90 days.

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

Short Real Estate  vs.  Financials Ultrasector Profund

Short Real Estate

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Short Real Estate are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Short Real may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Financials Ultrasector

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Financials Ultrasector Profund are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Financials Ultrasector may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Short Real and Financials Ultrasector

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

The idea behind Short Real Estate and Financials 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.