Correlation Between Growth Fund and Ultra Fund

Can any of the company-specific risk be diversified away by investing in both Growth 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 Growth 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 Growth Fund A and Ultra Fund C, you can compare the effects of market volatilities on Growth 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 Growth Fund with a short position of Ultra Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Growth Fund and Ultra Fund.

Diversification Opportunities for Growth Fund and Ultra Fund

1.0

Correlation Coefficient

Growth Fund  Ultra Fund

No risk reduction

The 3 months correlation between Growth and Ultra is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Growth Fund A and Ultra Fund C in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultra Fund C and Growth 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 Growth Fund A 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 C has no effect on the direction of Growth Fund i.e., Growth Fund and Ultra Fund go up and down completely randomly.

Pair Corralation between Growth Fund and Ultra Fund

Assuming the 90 days horizon Growth Fund A is expected to generate 0.98 times more return on investment than Ultra Fund. However, Growth Fund A is 1.02 times less risky than Ultra Fund. It trades about -0.11 of its potential returns per unit of risk. Ultra Fund C is currently generating about -0.14 per unit of risk. If you would invest  5,490  in Growth Fund A on December 28, 2024 and sell it today you would lose (533.00) from holding Growth Fund A or give up 9.71% of portfolio value over 90 days.

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

Growth Fund A  vs.  Ultra Fund C

Growth Fund A

Risk-Adjusted Performance

Very Weak

Over the last 90 days Growth Fund A 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 C

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ultra Fund C 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 fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Growth Fund and Ultra Fund

The main advantage of trading using opposite Growth Fund and Ultra Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Growth 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 Growth Fund A and Ultra Fund C 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.