Correlation Between Ultra Fund and Select Fund

Can any of the company-specific risk be diversified away by investing in both Ultra Fund and Select 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 Ultra Fund and Select Fund 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 Select Fund R6, you can compare the effects of market volatilities on Ultra Fund and Select 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 Ultra Fund with a short position of Select Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ultra Fund and Select Fund.

Diversification Opportunities for Ultra Fund and Select Fund

0.99

Correlation Coefficient

Ultra Fund  Select Fund

No risk reduction

The 3 months correlation between Ultra and Select is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Fund A and Select Fund R6 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select Fund R6 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 Select Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select Fund R6 has no effect on the direction of Ultra Fund i.e., Ultra Fund and Select Fund go up and down completely randomly.

Pair Corralation between Ultra Fund and Select Fund

Assuming the 90 days horizon Ultra Fund A is expected to under-perform the Select Fund. In addition to that, Ultra Fund is 1.04 times more volatile than Select Fund R6. It trades about -0.2 of its total potential returns per unit of risk. Select Fund R6 is currently generating about -0.18 per unit of volatility. If you would invest  13,684  in Select Fund R6 on October 7, 2024 and sell it today you would lose (681.00) from holding Select Fund R6 or give up 4.98% of portfolio value over 90 days.

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

Ultra Fund A  vs.  Select Fund R6

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.

Select Fund R6

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Select Fund R6 are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Select 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 Ultra Fund and Select Fund

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

The idea behind Ultra Fund A and Select Fund R6 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 Global Correlations module to find global opportunities by holding instruments from different markets.