Correlation Between Financials Ultrasector and Sarofim Equity
Can any of the company-specific risk be diversified away by investing in both Financials Ultrasector and Sarofim Equity 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 Sarofim Equity 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 Sarofim Equity, you can compare the effects of market volatilities on Financials Ultrasector and Sarofim Equity 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 Sarofim Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financials Ultrasector and Sarofim Equity.
Diversification Opportunities for Financials Ultrasector and Sarofim Equity
0.26 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Financials and Sarofim is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Financials Ultrasector Profund and Sarofim Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sarofim Equity 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 Sarofim Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sarofim Equity has no effect on the direction of Financials Ultrasector i.e., Financials Ultrasector and Sarofim Equity go up and down completely randomly.
Pair Corralation between Financials Ultrasector and Sarofim Equity
Assuming the 90 days horizon Financials Ultrasector Profund is expected to generate 0.47 times more return on investment than Sarofim Equity. However, Financials Ultrasector Profund is 2.15 times less risky than Sarofim Equity. It trades about -0.17 of its potential returns per unit of risk. Sarofim Equity is currently generating about -0.29 per unit of risk. If you would invest 4,413 in Financials Ultrasector Profund on October 9, 2024 and sell it today you would lose (228.00) from holding Financials Ultrasector Profund or give up 5.17% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Financials Ultrasector Profund vs. Sarofim Equity
Performance |
| Timeline |
| Financials Ultrasector |
| Sarofim Equity |
Financials Ultrasector and Sarofim Equity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financials Ultrasector and Sarofim Equity
The main advantage of trading using opposite Financials Ultrasector and Sarofim Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financials Ultrasector position performs unexpectedly, Sarofim Equity 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 Sarofim Equity will offset losses from the drop in Sarofim Equity's long position.The idea behind Financials Ultrasector Profund and Sarofim Equity 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 Transaction History module to view history of all your transactions and understand their impact on performance.
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