Correlation Between Financials Ultrasector and Short Oil
Can any of the company-specific risk be diversified away by investing in both Financials Ultrasector and Short Oil 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 Financials Ultrasector and Short Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Financials Ultrasector Profund and Short Oil Gas, you can compare the effects of market volatilities on Financials Ultrasector and Short Oil 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 Financials Ultrasector with a short position of Short Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financials Ultrasector and Short Oil.
Diversification Opportunities for Financials Ultrasector and Short Oil
-0.57 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between FINANCIALS and Short is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Financials Ultrasector Profund and Short Oil Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Oil Gas and Financials 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 Financials Ultrasector Profund are associated (or correlated) with Short Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Oil Gas has no effect on the direction of Financials Ultrasector i.e., Financials Ultrasector and Short Oil go up and down completely randomly.
Pair Corralation between Financials Ultrasector and Short Oil
Assuming the 90 days horizon Financials Ultrasector Profund is expected to generate 1.62 times more return on investment than Short Oil. However, Financials Ultrasector is 1.62 times more volatile than Short Oil Gas. It trades about 0.09 of its potential returns per unit of risk. Short Oil Gas is currently generating about -0.03 per unit of risk. If you would invest 4,087 in Financials Ultrasector Profund on October 26, 2024 and sell it today you would earn a total of 366.00 from holding Financials Ultrasector Profund or generate 8.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Financials Ultrasector Profund vs. Short Oil Gas
Performance |
| Timeline |
| Financials Ultrasector |
| Short Oil Gas |
Financials Ultrasector and Short Oil Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financials Ultrasector and Short Oil
The main advantage of trading using opposite Financials Ultrasector and Short Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financials Ultrasector position performs unexpectedly, Short Oil 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 Short Oil will offset losses from the drop in Short Oil's long position.The idea behind Financials Ultrasector Profund and Short Oil Gas 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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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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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