Correlation Between Ultrasmall-cap Profund and Regional Bank

Can any of the company-specific risk be diversified away by investing in both Ultrasmall-cap Profund and Regional Bank 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 Ultrasmall-cap Profund and Regional Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ultrasmall Cap Profund Ultrasmall Cap and Regional Bank Fund, you can compare the effects of market volatilities on Ultrasmall-cap Profund and Regional Bank 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 Ultrasmall-cap Profund with a short position of Regional Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ultrasmall-cap Profund and Regional Bank.

Diversification Opportunities for Ultrasmall-cap Profund and Regional Bank

0.87

Correlation Coefficient

Ultrasmall-cap Profund  Regional Bank

Very poor diversification

The 3 months correlation between Ultrasmall-cap and Regional is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Ultrasmall Cap Profund Ultrasm and Regional Bank Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Regional Bank and Ultrasmall-cap Profund 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 Ultrasmall Cap Profund Ultrasmall Cap are associated (or correlated) with Regional Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Regional Bank has no effect on the direction of Ultrasmall-cap Profund i.e., Ultrasmall-cap Profund and Regional Bank go up and down completely randomly.

Pair Corralation between Ultrasmall-cap Profund and Regional Bank

Assuming the 90 days horizon Ultrasmall Cap Profund Ultrasmall Cap is expected to generate 1.35 times more return on investment than Regional Bank. However, Ultrasmall-cap Profund is 1.35 times more volatile than Regional Bank Fund. It trades about -0.26 of its potential returns per unit of risk. Regional Bank Fund is currently generating about -0.39 per unit of risk. If you would invest  7,818  in Ultrasmall Cap Profund Ultrasmall Cap on October 9, 2024 and sell it today you would lose (1,027) from holding Ultrasmall Cap Profund Ultrasmall Cap or give up 13.14% of portfolio value over 90 days.

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

Ultrasmall Cap Profund Ultrasm  vs.  Regional Bank Fund

Ultrasmall Cap Profund

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ultrasmall Cap Profund Ultrasmall Cap are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Ultrasmall-cap Profund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Regional Bank

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Regional Bank Fund are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Regional Bank is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ultrasmall-cap Profund and Regional Bank

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

The idea behind Ultrasmall Cap Profund Ultrasmall Cap and Regional Bank 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.