Correlation Between Ultra Fund and Short Duration

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

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

Diversification Opportunities for Ultra Fund and Short Duration

-0.31

Correlation Coefficient

Ultra Fund  Short Duration

Very good diversification

The 3 months correlation between Ultra and Short is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Fund I and Short Duration Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Duration 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 I are associated (or correlated) with Short Duration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Duration has no effect on the direction of Ultra Fund i.e., Ultra Fund and Short Duration go up and down completely randomly.

Pair Corralation between Ultra Fund and Short Duration

Assuming the 90 days horizon Ultra Fund I is expected to generate 6.67 times more return on investment than Short Duration. However, Ultra Fund is 6.67 times more volatile than Short Duration Fund. It trades about 0.11 of its potential returns per unit of risk. Short Duration Fund is currently generating about 0.1 per unit of risk. If you would invest  5,770  in Ultra Fund I on September 23, 2024 and sell it today you would earn a total of  4,341  from holding Ultra Fund I or generate 75.23% return on investment over 90 days.

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

Ultra Fund I  vs.  Short Duration Fund

Ultra Fund I

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Fund I are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Ultra Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Short Duration

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Ultra Fund I and Short Duration 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.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.