Correlation Between Volatility Shares and KraneShares MSCI

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

By analyzing existing cross correlation between Volatility Shares Trust and KraneShares MSCI China, you can compare the effects of market volatilities on Volatility Shares and KraneShares MSCI 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 Volatility Shares with a short position of KraneShares MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Volatility Shares and KraneShares MSCI.

Diversification Opportunities for Volatility Shares and KraneShares MSCI

-0.31

Correlation Coefficient

Volatility Shares  KraneShares MSCI

Very good diversification

The 3 months correlation between Volatility and KraneShares is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Volatility Shares Trust and KraneShares MSCI China in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KraneShares MSCI China and Volatility Shares 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 Volatility Shares Trust are associated (or correlated) with KraneShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KraneShares MSCI China has no effect on the direction of Volatility Shares i.e., Volatility Shares and KraneShares MSCI go up and down completely randomly.

Pair Corralation between Volatility Shares and KraneShares MSCI

Given the investment horizon of 90 days Volatility Shares Trust is expected to generate 2.86 times more return on investment than KraneShares MSCI. However, Volatility Shares is 2.86 times more volatile than KraneShares MSCI China. It trades about 0.11 of its potential returns per unit of risk. KraneShares MSCI China is currently generating about 0.05 per unit of risk. If you would invest  3,333  in Volatility Shares Trust on October 22, 2024 and sell it today you would earn a total of  3,059  from holding Volatility Shares Trust or generate 91.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.2%
Values	Daily Returns

Volatility Shares Trust  vs.  KraneShares MSCI China

Volatility Shares Trust

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Volatility Shares Trust are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Volatility Shares showed solid returns over the last few months and may actually be approaching a breakup point.

KraneShares MSCI China

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KraneShares MSCI China has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, KraneShares MSCI is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Volatility Shares and KraneShares MSCI

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

The idea behind Volatility Shares Trust and KraneShares MSCI China 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.