Correlation Between Intermediate Term and Ultra Fund

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

By analyzing existing cross correlation between Intermediate Term Tax Free Bond and Ultra Fund R6, you can compare the effects of market volatilities on Intermediate Term 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 Intermediate Term with a short position of Ultra Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Intermediate Term and Ultra Fund.

Diversification Opportunities for Intermediate Term and Ultra Fund

-0.47

Correlation Coefficient

Intermediate Term  Ultra Fund

Very good diversification

The 3 months correlation between Intermediate and Ultra is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Intermediate Term Tax Free Bon and Ultra Fund R6 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultra Fund R6 and Intermediate Term 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 Intermediate Term Tax Free Bond 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 R6 has no effect on the direction of Intermediate Term i.e., Intermediate Term and Ultra Fund go up and down completely randomly.

Pair Corralation between Intermediate Term and Ultra Fund

Assuming the 90 days horizon Intermediate Term is expected to generate 29.73 times less return on investment than Ultra Fund. But when comparing it to its historical volatility, Intermediate Term Tax Free Bond is 5.0 times less risky than Ultra Fund. It trades about 0.03 of its potential returns per unit of risk. Ultra Fund R6 is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  9,281  in Ultra Fund R6 on September 2, 2024 and sell it today you would earn a total of  1,089  from holding Ultra Fund R6 or generate 11.73% return on investment over 90 days.

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

Intermediate Term Tax Free Bon  vs.  Ultra Fund R6

Intermediate Term Tax

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Intermediate Term Tax Free Bond are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Intermediate Term is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ultra Fund R6

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Fund R6 are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Ultra Fund may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Intermediate Term and Ultra Fund

The main advantage of trading using opposite Intermediate Term and Ultra Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Intermediate Term 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 Intermediate Term Tax Free Bond and Ultra Fund R6 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.