Correlation Between Nuveen Enhanced and Overlay Shares

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

By analyzing existing cross correlation between Nuveen Enhanced Yield and Overlay Shares Core, you can compare the effects of market volatilities on Nuveen Enhanced and Overlay Shares 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 Nuveen Enhanced with a short position of Overlay Shares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nuveen Enhanced and Overlay Shares.

Diversification Opportunities for Nuveen Enhanced and Overlay Shares

0.38

Correlation Coefficient

Nuveen Enhanced  Overlay Shares

Weak diversification

The 3 months correlation between Nuveen and Overlay is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Nuveen Enhanced Yield and Overlay Shares Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Overlay Shares Core and Nuveen Enhanced 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 Nuveen Enhanced Yield are associated (or correlated) with Overlay Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Overlay Shares Core has no effect on the direction of Nuveen Enhanced i.e., Nuveen Enhanced and Overlay Shares go up and down completely randomly.

Pair Corralation between Nuveen Enhanced and Overlay Shares

Given the investment horizon of 90 days Nuveen Enhanced Yield is expected to generate 0.25 times more return on investment than Overlay Shares. However, Nuveen Enhanced Yield is 4.0 times less risky than Overlay Shares. It trades about -0.15 of its potential returns per unit of risk. Overlay Shares Core is currently generating about -0.45 per unit of risk. If you would invest  2,304  in Nuveen Enhanced Yield on October 11, 2024 and sell it today you would lose (8.00) from holding Nuveen Enhanced Yield or give up 0.35% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Nuveen Enhanced Yield  vs.  Overlay Shares Core

Nuveen Enhanced Yield

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nuveen Enhanced Yield has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Nuveen Enhanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Overlay Shares Core

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Overlay Shares Core has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Overlay Shares is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Nuveen Enhanced and Overlay Shares

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

The idea behind Nuveen Enhanced Yield and Overlay Shares Core 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.