Correlation Between ETRACS Monthly and IPath Series

Can any of the company-specific risk be diversified away by investing in both ETRACS Monthly and IPath Series 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 ETRACS Monthly and IPath Series into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ETRACS Monthly Pay and iPath Series B, you can compare the effects of market volatilities on ETRACS Monthly and IPath Series 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 ETRACS Monthly with a short position of IPath Series. Check out your portfolio center. Please also check ongoing floating volatility patterns of ETRACS Monthly and IPath Series.

Diversification Opportunities for ETRACS Monthly and IPath Series

-0.62

Correlation Coefficient

ETRACS Monthly  IPath Series

Excellent diversification

The 3 months correlation between ETRACS and IPath is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding ETRACS Monthly Pay and iPath Series B in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iPath Series B and ETRACS Monthly 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 ETRACS Monthly Pay are associated (or correlated) with IPath Series. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iPath Series B has no effect on the direction of ETRACS Monthly i.e., ETRACS Monthly and IPath Series go up and down completely randomly.

Pair Corralation between ETRACS Monthly and IPath Series

Given the investment horizon of 90 days ETRACS Monthly Pay is expected to under-perform the IPath Series. But the etf apears to be less risky and, when comparing its historical volatility, ETRACS Monthly Pay is 5.87 times less risky than IPath Series. The etf trades about -0.04 of its potential returns per unit of risk. The iPath Series B is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  4,361  in iPath Series B on September 27, 2024 and sell it today you would lose (84.00) from holding iPath Series B or give up 1.93% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

ETRACS Monthly Pay  vs.  iPath Series B

ETRACS Monthly Pay

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ETRACS Monthly Pay are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, ETRACS Monthly is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

iPath Series B

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iPath Series B has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Pair Trading with ETRACS Monthly and IPath Series

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

The idea behind ETRACS Monthly Pay and iPath Series B 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.