Correlation Between Ultra Fund and Mid Cap

Can any of the company-specific risk be diversified away by investing in both Ultra Fund and Mid 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 Ultra Fund and Mid Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ultra Fund Y and Mid Cap 15x Strategy, you can compare the effects of market volatilities on Ultra Fund and Mid 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 Ultra Fund with a short position of Mid Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ultra Fund and Mid Cap.

Diversification Opportunities for Ultra Fund and Mid Cap

0.9

Correlation Coefficient

Ultra Fund  Mid Cap

Almost no diversification

The 3 months correlation between Ultra and Mid is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Fund Y and Mid Cap 15x Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Cap 15x and Ultra Fund 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 Fund Y are associated (or correlated) with Mid Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mid Cap 15x has no effect on the direction of Ultra Fund i.e., Ultra Fund and Mid Cap go up and down completely randomly.

Pair Corralation between Ultra Fund and Mid Cap

Assuming the 90 days horizon Ultra Fund Y is expected to generate 0.75 times more return on investment than Mid Cap. However, Ultra Fund Y is 1.34 times less risky than Mid Cap. It trades about 0.22 of its potential returns per unit of risk. Mid Cap 15x Strategy is currently generating about 0.04 per unit of risk. If you would invest  10,438  in Ultra Fund Y on September 13, 2024 and sell it today you would earn a total of  442.00  from holding Ultra Fund Y or generate 4.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

Ultra Fund Y  vs.  Mid Cap 15x Strategy

Ultra Fund Y

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Fund Y are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Ultra Fund showed solid returns over the last few months and may actually be approaching a breakup point.

Mid Cap 15x

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap 15x Strategy are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical indicators, Mid Cap showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ultra Fund and Mid Cap

The main advantage of trading using opposite Ultra Fund and Mid Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ultra Fund position performs unexpectedly, Mid 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 Mid Cap will offset losses from the drop in Mid Cap's long position.

The idea behind Ultra Fund Y and Mid Cap 15x Strategy 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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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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.