Correlation Between Simplify Equity and Volatility Shares

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

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

Diversification Opportunities for Simplify Equity and Volatility Shares

0.97

Correlation Coefficient

Simplify Equity  Volatility Shares

Almost no diversification

The 3 months correlation between Simplify and Volatility is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Simplify Equity PLUS and Volatility Shares Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volatility Shares Trust and Simplify Equity 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 Simplify Equity PLUS are associated (or correlated) with Volatility Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volatility Shares Trust has no effect on the direction of Simplify Equity i.e., Simplify Equity and Volatility Shares go up and down completely randomly.

Pair Corralation between Simplify Equity and Volatility Shares

Given the investment horizon of 90 days Simplify Equity is expected to generate 4.47 times less return on investment than Volatility Shares. But when comparing it to its historical volatility, Simplify Equity PLUS is 6.56 times less risky than Volatility Shares. It trades about 0.13 of its potential returns per unit of risk. Volatility Shares Trust is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,334  in Volatility Shares Trust on September 27, 2024 and sell it today you would earn a total of  4,578  from holding Volatility Shares Trust or generate 343.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	79.66%
Values	Daily Returns

Simplify Equity PLUS  vs.  Volatility Shares Trust

Simplify Equity PLUS

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Simplify Equity PLUS are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental drivers, Simplify Equity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Volatility Shares Trust

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Volatility Shares Trust are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Volatility Shares showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Simplify Equity and Volatility Shares

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

The idea behind Simplify Equity PLUS and Volatility Shares 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.