Correlation Between Ultra Nasdaq-100 and Internet Ultrasector
Can any of the company-specific risk be diversified away by investing in both Ultra Nasdaq-100 and Internet 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 Ultra Nasdaq-100 and Internet Ultrasector into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ultra Nasdaq 100 Profunds and Internet Ultrasector Profund, you can compare the effects of market volatilities on Ultra Nasdaq-100 and Internet 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 Ultra Nasdaq-100 with a short position of Internet Ultrasector. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ultra Nasdaq-100 and Internet Ultrasector.
Diversification Opportunities for Ultra Nasdaq-100 and Internet Ultrasector
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Ultra and Internet is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Nasdaq 100 Profunds and Internet Ultrasector Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Internet Ultrasector and Ultra Nasdaq-100 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 Ultra Nasdaq 100 Profunds are associated (or correlated) with Internet Ultrasector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Internet Ultrasector has no effect on the direction of Ultra Nasdaq-100 i.e., Ultra Nasdaq-100 and Internet Ultrasector go up and down completely randomly.
Pair Corralation between Ultra Nasdaq-100 and Internet Ultrasector
Assuming the 90 days horizon Ultra Nasdaq-100 is expected to generate 2.11 times less return on investment than Internet Ultrasector. In addition to that, Ultra Nasdaq-100 is 1.38 times more volatile than Internet Ultrasector Profund. It trades about 0.08 of its total potential returns per unit of risk. Internet Ultrasector Profund is currently generating about 0.24 per unit of volatility. If you would invest 4,293 in Internet Ultrasector Profund on August 24, 2024 and sell it today you would earn a total of 1,136 from holding Internet Ultrasector Profund or generate 26.46% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ultra Nasdaq 100 Profunds vs. Internet Ultrasector Profund
Performance |
| Timeline |
| Ultra Nasdaq 100 |
| Internet Ultrasector |
Ultra Nasdaq-100 and Internet Ultrasector Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ultra Nasdaq-100 and Internet Ultrasector
The main advantage of trading using opposite Ultra Nasdaq-100 and Internet Ultrasector positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ultra Nasdaq-100 position performs unexpectedly, Internet 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 Internet Ultrasector will offset losses from the drop in Internet Ultrasector's long position.The idea behind Ultra Nasdaq 100 Profunds and Internet Ultrasector Profund 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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