Correlation Between Listed Funds and Overlay Shares

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

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

Diversification Opportunities for Listed Funds and Overlay Shares

0.37

Correlation Coefficient

Listed Funds  Overlay Shares

Weak diversification

The 3 months correlation between Listed and Overlay is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Listed Funds Trust and Overlay Shares Hedged in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Overlay Shares Hedged and Listed Funds 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 Listed Funds Trust 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 Hedged has no effect on the direction of Listed Funds i.e., Listed Funds and Overlay Shares go up and down completely randomly.

Pair Corralation between Listed Funds and Overlay Shares

Considering the 90-day investment horizon Listed Funds Trust is expected to under-perform the Overlay Shares. But the etf apears to be less risky and, when comparing its historical volatility, Listed Funds Trust is 1.76 times less risky than Overlay Shares. The etf trades about -0.12 of its potential returns per unit of risk. The Overlay Shares Hedged is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  3,445  in Overlay Shares Hedged on October 7, 2024 and sell it today you would lose (9.00) from holding Overlay Shares Hedged or give up 0.26% of portfolio value over 90 days.

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

Listed Funds Trust  vs.  Overlay Shares Hedged

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.

Overlay Shares Hedged

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Overlay Shares Hedged are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong essential indicators, Overlay Shares is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Listed Funds and Overlay Shares

The main advantage of trading using opposite Listed Funds and Overlay Shares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Listed Funds 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 Listed Funds Trust and Overlay Shares Hedged 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.