Correlation Between Ultra Fund and Core Plus

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

By analyzing existing cross correlation between Ultra Fund A and Core Plus Fund, you can compare the effects of market volatilities on Ultra Fund and Core Plus 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 Core Plus. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ultra Fund and Core Plus.

Diversification Opportunities for Ultra Fund and Core Plus

-0.45

Correlation Coefficient

Ultra Fund  Core Plus

Very good diversification

The 3 months correlation between Ultra and Core is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Fund A and Core Plus Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Core Plus Fund 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 A are associated (or correlated) with Core Plus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Core Plus Fund has no effect on the direction of Ultra Fund i.e., Ultra Fund and Core Plus go up and down completely randomly.

Pair Corralation between Ultra Fund and Core Plus

Assuming the 90 days horizon Ultra Fund A is expected to generate 2.53 times more return on investment than Core Plus. However, Ultra Fund is 2.53 times more volatile than Core Plus Fund. It trades about 0.1 of its potential returns per unit of risk. Core Plus Fund is currently generating about 0.03 per unit of risk. If you would invest  5,087  in Ultra Fund A on September 23, 2024 and sell it today you would earn a total of  3,634  from holding Ultra Fund A or generate 71.44% return on investment over 90 days.

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

Ultra Fund A  vs.  Core Plus Fund

Ultra Fund A

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Fund A are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Ultra Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Core Plus Fund

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Ultra Fund A and Core Plus 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.