Correlation Between Growth Fund and Ultra Fund

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

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

Diversification Opportunities for Growth Fund and Ultra Fund

0.96

Correlation Coefficient

Growth Fund  Ultra Fund

Almost no diversification

The 3 months correlation between Growth and Ultra is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Growth Fund I and Ultra Fund Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultra Fund Investor and Growth 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 Growth Fund I 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 Investor has no effect on the direction of Growth Fund i.e., Growth Fund and Ultra Fund go up and down completely randomly.

Pair Corralation between Growth Fund and Ultra Fund

Assuming the 90 days horizon Growth Fund is expected to generate 1.08 times less return on investment than Ultra Fund. But when comparing it to its historical volatility, Growth Fund I is 1.11 times less risky than Ultra Fund. It trades about 0.13 of its potential returns per unit of risk. Ultra Fund Investor is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  7,096  in Ultra Fund Investor on February 20, 2024 and sell it today you would earn a total of  1,375  from holding Ultra Fund Investor or generate 19.38% return on investment over 90 days.

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

Growth Fund I  vs.  Ultra Fund Investor

Growth Fund I

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Growth Fund I are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Growth Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ultra Fund Investor

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Fund Investor are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Ultra Fund may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Growth Fund and Ultra Fund

The main advantage of trading using opposite Growth Fund and Ultra Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Growth Fund 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 Growth Fund I and Ultra Fund Investor 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.