Correlation Between M Large and Guggenheim Directional

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

By analyzing existing cross correlation between M Large Cap and Guggenheim Directional Allocation, you can compare the effects of market volatilities on M Large and Guggenheim Directional 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 M Large with a short position of Guggenheim Directional. Check out your portfolio center. Please also check ongoing floating volatility patterns of M Large and Guggenheim Directional.

Diversification Opportunities for M Large and Guggenheim Directional

0.77

Correlation Coefficient

M Large  Guggenheim Directional

Poor diversification

The 3 months correlation between MTCGX and Guggenheim is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding M Large Cap and Guggenheim Directional Allocat in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guggenheim Directional and M Large 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 M Large Cap are associated (or correlated) with Guggenheim Directional. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guggenheim Directional has no effect on the direction of M Large i.e., M Large and Guggenheim Directional go up and down completely randomly.

Pair Corralation between M Large and Guggenheim Directional

Assuming the 90 days horizon M Large Cap is expected to under-perform the Guggenheim Directional. In addition to that, M Large is 2.1 times more volatile than Guggenheim Directional Allocation. It trades about -0.09 of its total potential returns per unit of risk. Guggenheim Directional Allocation is currently generating about -0.09 per unit of volatility. If you would invest  1,475  in Guggenheim Directional Allocation on December 30, 2024 and sell it today you would lose (64.00) from holding Guggenheim Directional Allocation or give up 4.34% of portfolio value over 90 days.

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

M Large Cap  vs.  Guggenheim Directional Allocat

M Large Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days M Large Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Guggenheim Directional

Risk-Adjusted Performance

Very Weak

Over the last 90 days Guggenheim Directional Allocation has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Guggenheim Directional is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with M Large and Guggenheim Directional

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

The idea behind M Large Cap and Guggenheim Directional Allocation 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.