Correlation Between Volatility Shares and 2x Long

Can any of the company-specific risk be diversified away by investing in both Volatility Shares and 2x Long 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 2x Long 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 2x Long VIX, you can compare the effects of market volatilities on Volatility Shares and 2x Long 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 2x Long. Check out your portfolio center. Please also check ongoing floating volatility patterns of Volatility Shares and 2x Long.

Diversification Opportunities for Volatility Shares and 2x Long

-0.88

Correlation Coefficient

Volatility Shares  2x Long

Pay attention - limited upside

The 3 months correlation between Volatility and UVIX is -0.88. Overlapping area represents the amount of risk that can be diversified away by holding Volatility Shares Trust and 2x Long VIX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 2x Long VIX 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 2x Long. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 2x Long VIX has no effect on the direction of Volatility Shares i.e., Volatility Shares and 2x Long go up and down completely randomly.

Pair Corralation between Volatility Shares and 2x Long

Given the investment horizon of 90 days Volatility Shares Trust is expected to under-perform the 2x Long. But the etf apears to be less risky and, when comparing its historical volatility, Volatility Shares Trust is 1.71 times less risky than 2x Long. The etf trades about -0.05 of its potential returns per unit of risk. The 2x Long VIX is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  306.00  in 2x Long VIX on October 7, 2024 and sell it today you would earn a total of  12.00  from holding 2x Long VIX or generate 3.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Volatility Shares Trust  vs.  2x Long VIX

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.

2x Long VIX

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days 2x Long VIX has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Etf's forward indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the ETF investors.

Pair Trading with Volatility Shares and 2x Long

The main advantage of trading using opposite Volatility Shares and 2x Long positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Volatility Shares position performs unexpectedly, 2x Long 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 2x Long will offset losses from the drop in 2x Long's long position.

The idea behind Volatility Shares Trust and 2x Long VIX 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.