Correlation Between ARK Next and TCW ETF

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

By analyzing existing cross correlation between ARK Next Generation and TCW ETF Trust, you can compare the effects of market volatilities on ARK Next and TCW ETF 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 ARK Next with a short position of TCW ETF. Check out your portfolio center. Please also check ongoing floating volatility patterns of ARK Next and TCW ETF.

Diversification Opportunities for ARK Next and TCW ETF

0.7

Correlation Coefficient

ARK Next  TCW ETF

Poor diversification

The 3 months correlation between ARK and TCW is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding ARK Next Generation and TCW ETF Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TCW ETF Trust and ARK Next 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 ARK Next Generation are associated (or correlated) with TCW ETF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TCW ETF Trust has no effect on the direction of ARK Next i.e., ARK Next and TCW ETF go up and down completely randomly.

Pair Corralation between ARK Next and TCW ETF

Given the investment horizon of 90 days ARK Next Generation is expected to generate 1.9 times more return on investment than TCW ETF. However, ARK Next is 1.9 times more volatile than TCW ETF Trust. It trades about 0.1 of its potential returns per unit of risk. TCW ETF Trust is currently generating about 0.07 per unit of risk. If you would invest  7,413  in ARK Next Generation on September 15, 2024 and sell it today you would earn a total of  4,297  from holding ARK Next Generation or generate 57.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.6%
Values	Daily Returns

ARK Next Generation  vs.  TCW ETF Trust

ARK Next Generation

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ARK Next Generation are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward-looking signals, ARK Next showed solid returns over the last few months and may actually be approaching a breakup point.

TCW ETF Trust

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in TCW ETF Trust are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, TCW ETF is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with ARK Next and TCW ETF

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

The idea behind ARK Next Generation and TCW ETF Trust 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.