Correlation Between Litman Gregory and Ultrashort Mid-cap

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

By analyzing existing cross correlation between Litman Gregory Masters and Ultrashort Mid Cap Profund, you can compare the effects of market volatilities on Litman Gregory and Ultrashort Mid-cap 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 Litman Gregory with a short position of Ultrashort Mid-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Litman Gregory and Ultrashort Mid-cap.

Diversification Opportunities for Litman Gregory and Ultrashort Mid-cap

0.56

Correlation Coefficient

Litman Gregory  Ultrashort Mid-cap

Very weak diversification

The 3 months correlation between Litman and Ultrashort is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Litman Gregory Masters and Ultrashort Mid Cap Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultrashort Mid Cap and Litman Gregory 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 Litman Gregory Masters are associated (or correlated) with Ultrashort Mid-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultrashort Mid Cap has no effect on the direction of Litman Gregory i.e., Litman Gregory and Ultrashort Mid-cap go up and down completely randomly.

Pair Corralation between Litman Gregory and Ultrashort Mid-cap

Assuming the 90 days horizon Litman Gregory is expected to generate 58.25 times less return on investment than Ultrashort Mid-cap. But when comparing it to its historical volatility, Litman Gregory Masters is 98.99 times less risky than Ultrashort Mid-cap. It trades about 0.1 of its potential returns per unit of risk. Ultrashort Mid Cap Profund is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,455  in Ultrashort Mid Cap Profund on February 12, 2025 and sell it today you would earn a total of  277.00  from holding Ultrashort Mid Cap Profund or generate 11.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Litman Gregory Masters  vs.  Ultrashort Mid Cap Profund

Litman Gregory Masters

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Litman Gregory Masters are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Litman Gregory is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ultrashort Mid Cap

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ultrashort Mid Cap Profund are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Ultrashort Mid-cap showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Litman Gregory and Ultrashort Mid-cap

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

The idea behind Litman Gregory Masters and Ultrashort Mid Cap Profund 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.