Correlation Between Iaadx and Inverse Dow

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

By analyzing existing cross correlation between Iaadx and Inverse Dow 2x, you can compare the effects of market volatilities on Iaadx and Inverse Dow 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 Iaadx with a short position of Inverse Dow. Check out your portfolio center. Please also check ongoing floating volatility patterns of Iaadx and Inverse Dow.

Diversification Opportunities for Iaadx and Inverse Dow

0.22

Correlation Coefficient

Iaadx  Inverse Dow

Modest diversification

The 3 months correlation between Iaadx and Inverse is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Iaadx and Inverse Dow 2x in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Dow 2x and Iaadx 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 Iaadx are associated (or correlated) with Inverse Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Dow 2x has no effect on the direction of Iaadx i.e., Iaadx and Inverse Dow go up and down completely randomly.

Pair Corralation between Iaadx and Inverse Dow

Assuming the 90 days horizon Iaadx is expected to generate 2.09 times less return on investment than Inverse Dow. But when comparing it to its historical volatility, Iaadx is 7.45 times less risky than Inverse Dow. It trades about 0.21 of its potential returns per unit of risk. Inverse Dow 2x is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  13,930  in Inverse Dow 2x on December 21, 2024 and sell it today you would earn a total of  748.00  from holding Inverse Dow 2x or generate 5.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Iaadx  vs.  Inverse Dow 2x

Iaadx

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Iaadx are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Iaadx is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Inverse Dow 2x

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Inverse Dow 2x are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Inverse Dow may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Iaadx and Inverse Dow

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

The idea behind Iaadx and Inverse Dow 2x 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.