Correlation Between Overlay Shares and Listed Funds

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

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

Diversification Opportunities for Overlay Shares and Listed Funds

0.92

Correlation Coefficient

Overlay Shares  Listed Funds

Almost no diversification

The 3 months correlation between Overlay and Listed is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Overlay Shares Municipal and Listed Funds Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Listed Funds Trust and Overlay Shares 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 Overlay Shares Municipal are associated (or correlated) with Listed Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Listed Funds Trust has no effect on the direction of Overlay Shares i.e., Overlay Shares and Listed Funds go up and down completely randomly.

Pair Corralation between Overlay Shares and Listed Funds

Considering the 90-day investment horizon Overlay Shares Municipal is expected to under-perform the Listed Funds. In addition to that, Overlay Shares is 1.2 times more volatile than Listed Funds Trust. It trades about -0.42 of its total potential returns per unit of risk. Listed Funds Trust is currently generating about -0.33 per unit of volatility. If you would invest  2,252  in Listed Funds Trust on October 8, 2024 and sell it today you would lose (49.00) from holding Listed Funds Trust or give up 2.18% of portfolio value over 90 days.

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

Overlay Shares Municipal  vs.  Listed Funds Trust

Overlay Shares Municipal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Overlay Shares Municipal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Overlay Shares is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Listed Funds Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Listed Funds Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Listed Funds is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Overlay Shares and Listed Funds

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

The idea behind Overlay Shares Municipal and Listed Funds Trust 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.