Correlation Between Technology Ultrasector and Banking Fund

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

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

Diversification Opportunities for Technology Ultrasector and Banking Fund

0.71

Correlation Coefficient

Technology Ultrasector  Banking Fund

Poor diversification

The 3 months correlation between Technology and Banking is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Technology Ultrasector Profund and Banking Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banking Fund Class and Technology 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 Technology Ultrasector Profund are associated (or correlated) with Banking Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banking Fund Class has no effect on the direction of Technology Ultrasector i.e., Technology Ultrasector and Banking Fund go up and down completely randomly.

Pair Corralation between Technology Ultrasector and Banking Fund

Assuming the 90 days horizon Technology Ultrasector is expected to generate 2.56 times less return on investment than Banking Fund. But when comparing it to its historical volatility, Technology Ultrasector Profund is 1.51 times less risky than Banking Fund. It trades about 0.14 of its potential returns per unit of risk. Banking Fund Class is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  8,946  in Banking Fund Class on September 2, 2024 and sell it today you would earn a total of  1,117  from holding Banking Fund Class or generate 12.49% return on investment over 90 days.

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

Technology Ultrasector Profund  vs.  Banking Fund Class

Technology Ultrasector

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Technology Ultrasector Profund are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Technology Ultrasector showed solid returns over the last few months and may actually be approaching a breakup point.

Banking Fund Class

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Banking Fund Class are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward-looking signals, Banking Fund showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Technology Ultrasector and Banking Fund

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

The idea behind Technology Ultrasector Profund and Banking Fund Class 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.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..