Correlation Between Ultra Fund and Value Fund

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

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

Diversification Opportunities for Ultra Fund and Value Fund

0.13

Correlation Coefficient

Ultra Fund  Value Fund

Average diversification

The 3 months correlation between Ultra and Value is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Fund A and Value Fund I in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Value Fund I 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 A are associated (or correlated) with Value Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Value Fund I has no effect on the direction of Ultra Fund i.e., Ultra Fund and Value Fund go up and down completely randomly.

Pair Corralation between Ultra Fund and Value Fund

Assuming the 90 days horizon Ultra Fund A is expected to generate 0.72 times more return on investment than Value Fund. However, Ultra Fund A is 1.39 times less risky than Value Fund. It trades about -0.08 of its potential returns per unit of risk. Value Fund I is currently generating about -0.34 per unit of risk. If you would invest  8,974  in Ultra Fund A on October 1, 2024 and sell it today you would lose (219.00) from holding Ultra Fund A or give up 2.44% of portfolio value over 90 days.

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

Ultra Fund A  vs.  Value Fund I

Ultra Fund A

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Fund A are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Ultra Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Value Fund I

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Value Fund I has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Ultra Fund and Value Fund

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

The idea behind Ultra Fund A and Value 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.