Correlation Between Ultra Nasdaq-100 and Financials Ultrasector

Can any of the company-specific risk be diversified away by investing in both Ultra Nasdaq-100 and Financials Ultrasector 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 Nasdaq-100 and Financials Ultrasector into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ultra Nasdaq 100 Profunds and Financials Ultrasector Profund, you can compare the effects of market volatilities on Ultra Nasdaq-100 and Financials Ultrasector 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 Nasdaq-100 with a short position of Financials Ultrasector. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ultra Nasdaq-100 and Financials Ultrasector.

Diversification Opportunities for Ultra Nasdaq-100 and Financials Ultrasector

0.63

Correlation Coefficient

Ultra Nasdaq-100  Financials Ultrasector

Poor diversification

The 3 months correlation between Ultra and Financials is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Nasdaq 100 Profunds and Financials Ultrasector Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financials Ultrasector and Ultra Nasdaq-100 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 Nasdaq 100 Profunds are associated (or correlated) with Financials Ultrasector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financials Ultrasector has no effect on the direction of Ultra Nasdaq-100 i.e., Ultra Nasdaq-100 and Financials Ultrasector go up and down completely randomly.

Pair Corralation between Ultra Nasdaq-100 and Financials Ultrasector

Assuming the 90 days horizon Ultra Nasdaq 100 Profunds is expected to generate 1.27 times more return on investment than Financials Ultrasector. However, Ultra Nasdaq-100 is 1.27 times more volatile than Financials Ultrasector Profund. It trades about 0.1 of its potential returns per unit of risk. Financials Ultrasector Profund is currently generating about 0.08 per unit of risk. If you would invest  10,390  in Ultra Nasdaq 100 Profunds on October 7, 2024 and sell it today you would earn a total of  1,397  from holding Ultra Nasdaq 100 Profunds or generate 13.45% return on investment over 90 days.

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

Ultra Nasdaq 100 Profunds  vs.  Financials Ultrasector Profund

Ultra Nasdaq 100

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Nasdaq 100 Profunds are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Ultra Nasdaq-100 showed solid returns over the last few months and may actually be approaching a breakup point.

Financials Ultrasector

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Financials Ultrasector Profund are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Financials Ultrasector may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Ultra Nasdaq-100 and Financials Ultrasector

The main advantage of trading using opposite Ultra Nasdaq-100 and Financials Ultrasector positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ultra Nasdaq-100 position performs unexpectedly, Financials Ultrasector 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 Financials Ultrasector will offset losses from the drop in Financials Ultrasector's long position.

The idea behind Ultra Nasdaq 100 Profunds and Financials Ultrasector 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.