Correlation Between Ultra Fund and Intermediate-term

Can any of the company-specific risk be diversified away by investing in both Ultra Fund and Intermediate-term 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 Intermediate-term 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 Intermediate Term Tax Free Bond, you can compare the effects of market volatilities on Ultra Fund and Intermediate-term 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 Intermediate-term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ultra Fund and Intermediate-term.

Diversification Opportunities for Ultra Fund and Intermediate-term

0.4

Correlation Coefficient

Ultra Fund  Intermediate-term

Very weak diversification

The 3 months correlation between Ultra and Intermediate-term is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Fund A and Intermediate Term Tax Free Bon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intermediate Term Tax 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 Intermediate-term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intermediate Term Tax has no effect on the direction of Ultra Fund i.e., Ultra Fund and Intermediate-term go up and down completely randomly.

Pair Corralation between Ultra Fund and Intermediate-term

Assuming the 90 days horizon Ultra Fund A is expected to under-perform the Intermediate-term. In addition to that, Ultra Fund is 7.0 times more volatile than Intermediate Term Tax Free Bond. It trades about -0.09 of its total potential returns per unit of risk. Intermediate Term Tax Free Bond is currently generating about -0.02 per unit of volatility. If you would invest  1,081  in Intermediate Term Tax Free Bond on December 1, 2024 and sell it today you would lose (2.00) from holding Intermediate Term Tax Free Bond or give up 0.19% of portfolio value over 90 days.

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

Ultra Fund A  vs.  Intermediate Term Tax Free Bon

Ultra Fund A

Risk-Adjusted Performance

Very Weak

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

Intermediate Term Tax

Risk-Adjusted Performance

Very Weak

Over the last 90 days Intermediate Term Tax Free Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Intermediate-term 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 Intermediate-term

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

The idea behind Ultra Fund A and Intermediate Term Tax Free Bond 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.