Correlation Between Emerging Markets and Ultra Fund

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

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

Diversification Opportunities for Emerging Markets and Ultra Fund

0.97

Correlation Coefficient

Emerging Markets  Ultra Fund

Almost no diversification

The 3 months correlation between Emerging and Ultra is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Emerging Markets 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 Emerging Markets 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 Emerging Markets 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 Emerging Markets i.e., Emerging Markets and Ultra Fund go up and down completely randomly.

Pair Corralation between Emerging Markets and Ultra Fund

Assuming the 90 days horizon Emerging Markets Fund is expected to generate 1.06 times more return on investment than Ultra Fund. However, Emerging Markets is 1.06 times more volatile than Ultra Fund I. It trades about 0.23 of its potential returns per unit of risk. Ultra Fund I is currently generating about 0.24 per unit of risk. If you would invest  1,246  in Emerging Markets Fund on April 10, 2025 and sell it today you would earn a total of  53.00  from holding Emerging Markets Fund or generate 4.25% return on investment over 90 days.

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

Emerging Markets Fund  vs.  Ultra Fund I

Emerging Markets

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Emerging Markets Fund are ranked lower than 31 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Emerging Markets showed solid returns over the last few months and may actually be approaching a breakup point.

Ultra Fund I

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ultra Fund I are ranked lower than 21 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Ultra Fund showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Emerging Markets and Ultra Fund

The main advantage of trading using opposite Emerging Markets and Ultra Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emerging Markets 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 Emerging Markets 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.