Correlation Between Ultra Fund and Government Bond

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

By analyzing existing cross correlation between Ultra Fund C and Government Bond Fund, you can compare the effects of market volatilities on Ultra Fund and Government Bond 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 Ultra Fund with a short position of Government Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ultra Fund and Government Bond.

Diversification Opportunities for Ultra Fund and Government Bond

-0.65

Correlation Coefficient

Ultra Fund  Government Bond

Excellent diversification

The 3 months correlation between Ultra and Government is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Fund C and Government Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Government Bond and Ultra 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 Ultra Fund C are associated (or correlated) with Government Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Government Bond has no effect on the direction of Ultra Fund i.e., Ultra Fund and Government Bond go up and down completely randomly.

Pair Corralation between Ultra Fund and Government Bond

Assuming the 90 days horizon Ultra Fund C is expected to generate 2.97 times more return on investment than Government Bond. However, Ultra Fund is 2.97 times more volatile than Government Bond Fund. It trades about 0.11 of its potential returns per unit of risk. Government Bond Fund is currently generating about 0.01 per unit of risk. If you would invest  5,144  in Ultra Fund C on September 19, 2024 and sell it today you would earn a total of  1,698  from holding Ultra Fund C or generate 33.01% return on investment over 90 days.

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

Ultra Fund C  vs.  Government Bond Fund

Ultra Fund C

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Fund C are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Ultra Fund may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Government Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Ultra Fund and Government Bond

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

The idea behind Ultra Fund C and Government Bond 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.