Correlation Between Ultrashort Mid-cap and Ultrashort China

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

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

Diversification Opportunities for Ultrashort Mid-cap and Ultrashort China

-0.39

Correlation Coefficient

Ultrashort Mid-cap  Ultrashort China

Very good diversification

The 3 months correlation between Ultrashort and Ultrashort is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Ultrashort Mid Cap Profund and Ultrashort China Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultrashort China Profund and Ultrashort Mid-cap 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 Ultrashort Mid Cap Profund are associated (or correlated) with Ultrashort China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultrashort China Profund has no effect on the direction of Ultrashort Mid-cap i.e., Ultrashort Mid-cap and Ultrashort China go up and down completely randomly.

Pair Corralation between Ultrashort Mid-cap and Ultrashort China

Assuming the 90 days horizon Ultrashort Mid Cap Profund is expected to under-perform the Ultrashort China. But the mutual fund apears to be less risky and, when comparing its historical volatility, Ultrashort Mid Cap Profund is 2.29 times less risky than Ultrashort China. The mutual fund trades about -0.04 of its potential returns per unit of risk. The Ultrashort China Profund is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  311.00  in Ultrashort China Profund on October 10, 2024 and sell it today you would earn a total of  68.00  from holding Ultrashort China Profund or generate 21.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Ultrashort Mid Cap Profund  vs.  Ultrashort China Profund

Ultrashort Mid Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ultrashort Mid Cap Profund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Ultrashort Mid-cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ultrashort China Profund

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ultrashort China Profund are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Ultrashort China showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ultrashort Mid-cap and Ultrashort China

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

The idea behind Ultrashort Mid Cap Profund and Ultrashort China Profund 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.