Correlation Between Technology Ultrasector and Large Cap

Can any of the company-specific risk be diversified away by investing in both Technology Ultrasector and Large Cap 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 Large Cap 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 Large Cap Fund, you can compare the effects of market volatilities on Technology Ultrasector and Large Cap 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 Large Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Technology Ultrasector and Large Cap.

Diversification Opportunities for Technology Ultrasector and Large Cap

0.37

Correlation Coefficient

Technology Ultrasector  Large Cap

Weak diversification

The 3 months correlation between Technology and Large is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Technology Ultrasector Profund and Large Cap Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap Fund 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 Large Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Cap Fund has no effect on the direction of Technology Ultrasector i.e., Technology Ultrasector and Large Cap go up and down completely randomly.

Pair Corralation between Technology Ultrasector and Large Cap

Assuming the 90 days horizon Technology Ultrasector Profund is expected to under-perform the Large Cap. In addition to that, Technology Ultrasector is 3.07 times more volatile than Large Cap Fund. It trades about -0.12 of its total potential returns per unit of risk. Large Cap Fund is currently generating about 0.01 per unit of volatility. If you would invest  1,449  in Large Cap Fund on December 30, 2024 and sell it today you would earn a total of  5.00  from holding Large Cap Fund or generate 0.35% return on investment over 90 days.

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

Technology Ultrasector Profund  vs.  Large Cap Fund

Technology Ultrasector

Risk-Adjusted Performance

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 weak performance in the last few months, the Fund's forward 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.

Large Cap Fund

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Technology Ultrasector Profund and Large Cap Fund 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.