Correlation Between Profunds Ultrashort and Common Stock
Can any of the company-specific risk be diversified away by investing in both Profunds Ultrashort and Common Stock 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 Profunds Ultrashort and Common Stock into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Profunds Ultrashort Nasdaq 100 and Common Stock Fund, you can compare the effects of market volatilities on Profunds Ultrashort and Common Stock 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 Profunds Ultrashort with a short position of Common Stock. Check out your portfolio center. Please also check ongoing floating volatility patterns of Profunds Ultrashort and Common Stock.
Diversification Opportunities for Profunds Ultrashort and Common Stock
-0.92 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Profunds and Common is -0.92. Overlapping area represents the amount of risk that can be diversified away by holding Profunds Ultrashort Nasdaq 100 and Common Stock Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Common Stock and Profunds Ultrashort 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 Profunds Ultrashort Nasdaq 100 are associated (or correlated) with Common Stock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Common Stock has no effect on the direction of Profunds Ultrashort i.e., Profunds Ultrashort and Common Stock go up and down completely randomly.
Pair Corralation between Profunds Ultrashort and Common Stock
Assuming the 90 days horizon Profunds Ultrashort Nasdaq 100 is expected to under-perform the Common Stock. In addition to that, Profunds Ultrashort is 2.16 times more volatile than Common Stock Fund. It trades about -0.08 of its total potential returns per unit of risk. Common Stock Fund is currently generating about 0.08 per unit of volatility. If you would invest 3,088 in Common Stock Fund on August 31, 2024 and sell it today you would earn a total of 957.00 from holding Common Stock Fund or generate 30.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 99.73% |
| Values | Daily Returns |
Profunds Ultrashort Nasdaq 100 vs. Common Stock Fund
Performance |
| Timeline |
| Profunds Ultrashort |
| Common Stock |
Profunds Ultrashort and Common Stock Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Profunds Ultrashort and Common Stock
The main advantage of trading using opposite Profunds Ultrashort and Common Stock positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Profunds Ultrashort position performs unexpectedly, Common Stock 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 Common Stock will offset losses from the drop in Common Stock's long position.The idea behind Profunds Ultrashort Nasdaq 100 and Common Stock Fund 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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