Correlation Between Swan Hedged and Simplify Equity

Can any of the company-specific risk be diversified away by investing in both Swan Hedged and Simplify Equity 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 Swan Hedged and Simplify Equity into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Swan Hedged Equity and Simplify Equity PLUS, you can compare the effects of market volatilities on Swan Hedged and Simplify Equity 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 Swan Hedged with a short position of Simplify Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Swan Hedged and Simplify Equity.

Diversification Opportunities for Swan Hedged and Simplify Equity

0.84

Correlation Coefficient

Swan Hedged  Simplify Equity

Very poor diversification

The 3 months correlation between Swan and Simplify is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Swan Hedged Equity and Simplify Equity PLUS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Simplify Equity PLUS and Swan Hedged 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 Swan Hedged Equity are associated (or correlated) with Simplify Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Simplify Equity PLUS has no effect on the direction of Swan Hedged i.e., Swan Hedged and Simplify Equity go up and down completely randomly.

Pair Corralation between Swan Hedged and Simplify Equity

Given the investment horizon of 90 days Swan Hedged is expected to generate 1.12 times less return on investment than Simplify Equity. But when comparing it to its historical volatility, Swan Hedged Equity is 1.92 times less risky than Simplify Equity. It trades about 0.09 of its potential returns per unit of risk. Simplify Equity PLUS is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3,324  in Simplify Equity PLUS on October 6, 2024 and sell it today you would earn a total of  64.00  from holding Simplify Equity PLUS or generate 1.93% return on investment over 90 days.

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

Swan Hedged Equity  vs.  Simplify Equity PLUS

Swan Hedged Equity

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Swan Hedged Equity are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Swan Hedged is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Simplify Equity PLUS

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Simplify Equity PLUS are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Simplify Equity is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Swan Hedged and Simplify Equity

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

The idea behind Swan Hedged Equity and Simplify Equity PLUS 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.