Correlation Between Index Fund and Ultra Short-term

Can any of the company-specific risk be diversified away by investing in both Index Fund and Ultra Short-term 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 Index Fund and Ultra Short-term into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Index Fund Class and Ultra Short Term Municipal, you can compare the effects of market volatilities on Index Fund and Ultra Short-term 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 Index Fund with a short position of Ultra Short-term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Index Fund and Ultra Short-term.

Diversification Opportunities for Index Fund and Ultra Short-term

-0.55

Correlation Coefficient

Index Fund  Ultra Short-term

Excellent diversification

The 3 months correlation between Index and Ultra is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Index Fund Class and Ultra Short Term Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultra Short Term and Index Fund 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 Index Fund Class are associated (or correlated) with Ultra Short-term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultra Short Term has no effect on the direction of Index Fund i.e., Index Fund and Ultra Short-term go up and down completely randomly.

Pair Corralation between Index Fund and Ultra Short-term

Assuming the 90 days horizon Index Fund Class is expected to under-perform the Ultra Short-term. In addition to that, Index Fund is 17.16 times more volatile than Ultra Short Term Municipal. It trades about -0.06 of its total potential returns per unit of risk. Ultra Short Term Municipal is currently generating about 0.21 per unit of volatility. If you would invest  957.00  in Ultra Short Term Municipal on December 28, 2024 and sell it today you would earn a total of  7.00  from holding Ultra Short Term Municipal or generate 0.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Index Fund Class  vs.  Ultra Short Term Municipal

Index Fund Class

Risk-Adjusted Performance

Very Weak

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

Ultra Short Term

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Short Term Municipal are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Ultra Short-term is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Index Fund and Ultra Short-term

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

The idea behind Index Fund Class and Ultra Short Term Municipal 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.

Check out your portfolio center.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.