Correlation Between Financial Industries and Financials Ultrasector
Can any of the company-specific risk be diversified away by investing in both Financial Industries 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 Financial Industries and Financials Ultrasector into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Financial Industries Fund and Financials Ultrasector Profund, you can compare the effects of market volatilities on Financial Industries 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 Financial Industries with a short position of Financials Ultrasector. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial Industries and Financials Ultrasector.
Diversification Opportunities for Financial Industries and Financials Ultrasector
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Financial and Financials is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Financial Industries Fund and Financials Ultrasector Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financials Ultrasector and Financial Industries 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 Financial Industries Fund 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 Financial Industries i.e., Financial Industries and Financials Ultrasector go up and down completely randomly.
Pair Corralation between Financial Industries and Financials Ultrasector
Assuming the 90 days horizon Financial Industries Fund is expected to generate 0.68 times more return on investment than Financials Ultrasector. However, Financial Industries Fund is 1.48 times less risky than Financials Ultrasector. It trades about 0.17 of its potential returns per unit of risk. Financials Ultrasector Profund is currently generating about 0.07 per unit of risk. If you would invest 1,829 in Financial Industries Fund on October 25, 2024 and sell it today you would earn a total of 65.00 from holding Financial Industries Fund or generate 3.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Financial Industries Fund vs. Financials Ultrasector Profund
Performance |
| Timeline |
| Financial Industries |
| Financials Ultrasector |
Financial Industries and Financials Ultrasector Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financial Industries and Financials Ultrasector
The main advantage of trading using opposite Financial Industries and Financials Ultrasector positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Industries 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.| Financial Industries vs. Amg Managers Centersquare | Financial Industries vs. Tiaa Cref Real Estate | Financial Industries vs. Commonwealth Real Estate | Financial Industries vs. Vanguard Reit Index |
| Financials Ultrasector vs. Nasdaq 100 2x Strategy | Financials Ultrasector vs. Nasdaq 100 2x Strategy | Financials Ultrasector vs. Nasdaq 100 2x Strategy | Financials Ultrasector vs. Ultra Nasdaq 100 Profunds |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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