Correlation Between Technology Ultrasector and State Farm

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

Diversification Opportunities for Technology Ultrasector and State Farm

0.72

Correlation Coefficient

Technology Ultrasector  State Farm

Poor diversification

The 3 months correlation between Technology and State is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Technology Ultrasector Profund and State Farm Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Farm Balanced 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 State Farm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Farm Balanced has no effect on the direction of Technology Ultrasector i.e., Technology Ultrasector and State Farm go up and down completely randomly.

Pair Corralation between Technology Ultrasector and State Farm

Assuming the 90 days horizon Technology Ultrasector is expected to generate 37.5 times less return on investment than State Farm. In addition to that, Technology Ultrasector is 3.08 times more volatile than State Farm Balanced. It trades about 0.0 of its total potential returns per unit of risk. State Farm Balanced is currently generating about 0.02 per unit of volatility. If you would invest  8,582  in State Farm Balanced on December 5, 2024 and sell it today you would earn a total of  260.00  from holding State Farm Balanced or generate 3.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.6%
Values	Daily Returns

Technology Ultrasector Profund  vs.  State Farm Balanced

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.

State Farm Balanced

Risk-Adjusted Performance

Very Weak

Over the last 90 days State Farm Balanced has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Technology Ultrasector and State Farm

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

The idea behind Technology Ultrasector Profund and State Farm Balanced 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.