Correlation Between Profunds Ultrashort and Diamond Hill

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

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

Diversification Opportunities for Profunds Ultrashort and Diamond Hill

-0.84

Correlation Coefficient

Profunds Ultrashort  Diamond Hill

Pay attention - limited upside

The 3 months correlation between Profunds and Diamond is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding Profunds Ultrashort Nasdaq 100 and Diamond Hill Mid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Hill Mid and Profunds Ultrashort 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 Profunds Ultrashort Nasdaq 100 are associated (or correlated) with Diamond Hill. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamond Hill Mid has no effect on the direction of Profunds Ultrashort i.e., Profunds Ultrashort and Diamond Hill go up and down completely randomly.

Pair Corralation between Profunds Ultrashort and Diamond Hill

Assuming the 90 days horizon Profunds Ultrashort Nasdaq 100 is expected to generate 3.11 times more return on investment than Diamond Hill. However, Profunds Ultrashort is 3.11 times more volatile than Diamond Hill Mid. It trades about 0.12 of its potential returns per unit of risk. Diamond Hill Mid is currently generating about -0.02 per unit of risk. If you would invest  2,478  in Profunds Ultrashort Nasdaq 100 on December 30, 2024 and sell it today you would earn a total of  485.00  from holding Profunds Ultrashort Nasdaq 100 or generate 19.57% return on investment over 90 days.

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

Profunds Ultrashort Nasdaq 100  vs.  Diamond Hill Mid

Profunds Ultrashort

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Profunds Ultrashort Nasdaq 100 are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Profunds Ultrashort showed solid returns over the last few months and may actually be approaching a breakup point.

Diamond Hill Mid

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Profunds Ultrashort and Diamond Hill

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

The idea behind Profunds Ultrashort Nasdaq 100 and Diamond Hill Mid 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.