Correlation Between Financials Ultrasector and Small Cap
Can any of the company-specific risk be diversified away by investing in both Financials Ultrasector and Small Cap 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 Small Cap 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 Small Cap Index, you can compare the effects of market volatilities on Financials Ultrasector and Small Cap 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 Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financials Ultrasector and Small Cap.
Diversification Opportunities for Financials Ultrasector and Small Cap
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Financials and Small is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Financials Ultrasector Profund and Small Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Index 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 Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Index has no effect on the direction of Financials Ultrasector i.e., Financials Ultrasector and Small Cap go up and down completely randomly.
Pair Corralation between Financials Ultrasector and Small Cap
Assuming the 90 days horizon Financials Ultrasector Profund is expected to generate 0.99 times more return on investment than Small Cap. However, Financials Ultrasector Profund is 1.01 times less risky than Small Cap. It trades about -0.01 of its potential returns per unit of risk. Small Cap Index is currently generating about -0.01 per unit of risk. If you would invest 4,431 in Financials Ultrasector Profund on September 14, 2024 and sell it today you would lose (9.00) from holding Financials Ultrasector Profund or give up 0.2% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Financials Ultrasector Profund vs. Small Cap Index
Performance |
| Timeline |
| Financials Ultrasector |
| Small Cap Index |
Financials Ultrasector and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Financials Ultrasector and Small Cap
The main advantage of trading using opposite Financials Ultrasector and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financials Ultrasector position performs unexpectedly, Small Cap 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 Small Cap will offset losses from the drop in Small Cap's long position.| Financials Ultrasector vs. Short Real Estate | Financials Ultrasector vs. Short Real Estate | Financials Ultrasector vs. Ultrashort Mid Cap Profund | Financials Ultrasector vs. Ultrashort Mid Cap Profund |
| Small Cap vs. Mid Cap Index | Small Cap vs. Valic Company I | Small Cap vs. Valic Company I | Small Cap vs. Stock Index Fund |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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