Correlation Between Short-term Government and Ultra Fund

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

By analyzing existing cross correlation between Short Term Government Fund and Ultra Fund I, you can compare the effects of market volatilities on Short-term Government and Ultra 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 Short-term Government with a short position of Ultra Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Short-term Government and Ultra Fund.

Diversification Opportunities for Short-term Government and Ultra Fund

-0.73

Correlation Coefficient

Short-term Government  Ultra Fund

Pay attention - limited upside

The 3 months correlation between Short-term and Ultra is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Short Term Government Fund and Ultra Fund I in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultra Fund I and Short-term Government 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 Short Term Government Fund are associated (or correlated) with Ultra Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultra Fund I has no effect on the direction of Short-term Government i.e., Short-term Government and Ultra Fund go up and down completely randomly.

Pair Corralation between Short-term Government and Ultra Fund

Assuming the 90 days horizon Short Term Government Fund is expected to under-perform the Ultra Fund. But the mutual fund apears to be less risky and, when comparing its historical volatility, Short Term Government Fund is 9.25 times less risky than Ultra Fund. The mutual fund trades about -0.05 of its potential returns per unit of risk. The Ultra Fund I is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  9,179  in Ultra Fund I on September 2, 2024 and sell it today you would earn a total of  1,073  from holding Ultra Fund I or generate 11.69% return on investment over 90 days.

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

Short Term Government Fund  vs.  Ultra Fund I

Short Term Government

Risk-Adjusted Performance

0 of 100

Very Weak

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

Ultra Fund I

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Fund I are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Ultra Fund may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Short-term Government and Ultra Fund

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

The idea behind Short Term Government Fund and Ultra Fund I 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.