Correlation Between Strengthening Dollar and Rising Dollar

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

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

Diversification Opportunities for Strengthening Dollar and Rising Dollar

1.0

Correlation Coefficient

Strengthening Dollar  Rising Dollar

No risk reduction

The 3 months correlation between Strengthening and Rising is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Strengthening Dollar 2x and Rising Dollar Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rising Dollar Profund and Strengthening Dollar 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 Strengthening Dollar 2x are associated (or correlated) with Rising Dollar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rising Dollar Profund has no effect on the direction of Strengthening Dollar i.e., Strengthening Dollar and Rising Dollar go up and down completely randomly.

Pair Corralation between Strengthening Dollar and Rising Dollar

Assuming the 90 days horizon Strengthening Dollar 2x is expected to generate 1.98 times more return on investment than Rising Dollar. However, Strengthening Dollar is 1.98 times more volatile than Rising Dollar Profund. It trades about 0.19 of its potential returns per unit of risk. Rising Dollar Profund is currently generating about 0.2 per unit of risk. If you would invest  6,075  in Strengthening Dollar 2x on September 2, 2024 and sell it today you would earn a total of  588.00  from holding Strengthening Dollar 2x or generate 9.68% return on investment over 90 days.

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

Strengthening Dollar 2x  vs.  Rising Dollar Profund

Strengthening Dollar

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Strengthening Dollar 2x are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental drivers, Strengthening Dollar may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Rising Dollar Profund

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rising Dollar Profund are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Rising Dollar is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Strengthening Dollar and Rising Dollar

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

The idea behind Strengthening Dollar 2x and Rising Dollar Profund 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.