Correlation Between Technology Ultrasector and Amcap Fund

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

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

Diversification Opportunities for Technology Ultrasector and Amcap Fund

0.67

Correlation Coefficient

Technology Ultrasector  Amcap Fund

Poor diversification

The 3 months correlation between Technology and Amcap is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Technology Ultrasector Profund and Amcap Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amcap Fund Class and Technology Ultrasector 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 Technology Ultrasector Profund are associated (or correlated) with Amcap Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amcap Fund Class has no effect on the direction of Technology Ultrasector i.e., Technology Ultrasector and Amcap Fund go up and down completely randomly.

Pair Corralation between Technology Ultrasector and Amcap Fund

Assuming the 90 days horizon Technology Ultrasector Profund is expected to generate 2.15 times more return on investment than Amcap Fund. However, Technology Ultrasector is 2.15 times more volatile than Amcap Fund Class. It trades about 0.07 of its potential returns per unit of risk. Amcap Fund Class is currently generating about 0.08 per unit of risk. If you would invest  2,038  in Technology Ultrasector Profund on October 5, 2024 and sell it today you would earn a total of  1,604  from holding Technology Ultrasector Profund or generate 78.7% return on investment over 90 days.

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

Technology Ultrasector Profund  vs.  Amcap Fund Class

Technology Ultrasector

Risk-Adjusted Performance

0 of 100

Very Weak

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

Amcap Fund Class

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Amcap Fund Class has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Amcap 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 Technology Ultrasector and Amcap Fund

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

The idea behind Technology Ultrasector Profund and Amcap Fund Class 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.