Correlation Between Profunds Ultrashort and Taxable Municipal

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

By analyzing existing cross correlation between Profunds Ultrashort Nasdaq 100 and Taxable Municipal Bond, you can compare the effects of market volatilities on Profunds Ultrashort and Taxable Municipal 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 Profunds Ultrashort with a short position of Taxable Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Profunds Ultrashort and Taxable Municipal.

Diversification Opportunities for Profunds Ultrashort and Taxable Municipal

0.71

Correlation Coefficient

Profunds Ultrashort  Taxable Municipal

Poor diversification

The 3 months correlation between Profunds and Taxable is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Profunds Ultrashort Nasdaq 100 and Taxable Municipal Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taxable Municipal Bond and Profunds Ultrashort 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 Profunds Ultrashort Nasdaq 100 are associated (or correlated) with Taxable Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taxable Municipal Bond has no effect on the direction of Profunds Ultrashort i.e., Profunds Ultrashort and Taxable Municipal go up and down completely randomly.

Pair Corralation between Profunds Ultrashort and Taxable Municipal

Assuming the 90 days horizon Profunds Ultrashort Nasdaq 100 is expected to under-perform the Taxable Municipal. In addition to that, Profunds Ultrashort is 4.81 times more volatile than Taxable Municipal Bond. It trades about -0.15 of its total potential returns per unit of risk. Taxable Municipal Bond is currently generating about -0.02 per unit of volatility. If you would invest  760.00  in Taxable Municipal Bond on September 4, 2024 and sell it today you would lose (4.00) from holding Taxable Municipal Bond or give up 0.53% of portfolio value over 90 days.

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

Profunds Ultrashort Nasdaq 100  vs.  Taxable Municipal Bond

Profunds Ultrashort

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Profunds Ultrashort Nasdaq 100 has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Taxable Municipal Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Profunds Ultrashort and Taxable Municipal

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

The idea behind Profunds Ultrashort Nasdaq 100 and Taxable Municipal Bond 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.