Correlation Between National Tax and Financials Ultrasector

Can any of the company-specific risk be diversified away by investing in both National Tax and Financials 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 National Tax and Financials Ultrasector into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The National Tax Free and Financials Ultrasector Profund, you can compare the effects of market volatilities on National Tax and Financials 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 National Tax with a short position of Financials Ultrasector. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Tax and Financials Ultrasector.

Diversification Opportunities for National Tax and Financials Ultrasector

-0.01

Correlation Coefficient

National Tax  Financials Ultrasector

Good diversification

The 3 months correlation between National and Financials is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding The National Tax Free and Financials Ultrasector Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financials Ultrasector and National Tax 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 The National Tax Free are associated (or correlated) with Financials Ultrasector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financials Ultrasector has no effect on the direction of National Tax i.e., National Tax and Financials Ultrasector go up and down completely randomly.

Pair Corralation between National Tax and Financials Ultrasector

Assuming the 90 days horizon The National Tax Free is expected to under-perform the Financials Ultrasector. But the mutual fund apears to be less risky and, when comparing its historical volatility, The National Tax Free is 7.56 times less risky than Financials Ultrasector. The mutual fund trades about -0.12 of its potential returns per unit of risk. The Financials Ultrasector Profund is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,881  in Financials Ultrasector Profund on September 29, 2024 and sell it today you would earn a total of  465.00  from holding Financials Ultrasector Profund or generate 11.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

The National Tax Free  vs.  Financials Ultrasector Profund

National Tax

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The National Tax Free has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong essential indicators, National Tax is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Financials Ultrasector

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Financials Ultrasector Profund are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Financials Ultrasector may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with National Tax and Financials Ultrasector

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

The idea behind The National Tax Free and Financials 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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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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.