Correlation Between Utilities Ultrasector and Amg River

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

By analyzing existing cross correlation between Utilities Ultrasector Profund and Amg River Road, you can compare the effects of market volatilities on Utilities Ultrasector and Amg River 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 Utilities Ultrasector with a short position of Amg River. Check out your portfolio center. Please also check ongoing floating volatility patterns of Utilities Ultrasector and Amg River.

Diversification Opportunities for Utilities Ultrasector and Amg River

0.27

Correlation Coefficient

Utilities Ultrasector  Amg River

Modest diversification

The 3 months correlation between Utilities and Amg is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Utilities Ultrasector Profund and Amg River Road in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amg River Road and Utilities Ultrasector 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 Utilities Ultrasector Profund are associated (or correlated) with Amg River. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amg River Road has no effect on the direction of Utilities Ultrasector i.e., Utilities Ultrasector and Amg River go up and down completely randomly.

Pair Corralation between Utilities Ultrasector and Amg River

Assuming the 90 days horizon Utilities Ultrasector Profund is expected to under-perform the Amg River. But the mutual fund apears to be less risky and, when comparing its historical volatility, Utilities Ultrasector Profund is 1.08 times less risky than Amg River. The mutual fund trades about -0.11 of its potential returns per unit of risk. The Amg River Road is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  1,026  in Amg River Road on September 27, 2024 and sell it today you would lose (61.00) from holding Amg River Road or give up 5.95% of portfolio value over 90 days.

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

Utilities Ultrasector Profund  vs.  Amg River Road

Utilities Ultrasector

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Utilities Ultrasector Profund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Amg River Road

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Utilities Ultrasector and Amg River

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

The idea behind Utilities Ultrasector Profund and Amg River Road 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.