Correlation Between Tidal Trust and US Dollar

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

By analyzing existing cross correlation between Tidal Trust II and US Dollar Currency, you can compare the effects of market volatilities on Tidal Trust and US 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 Tidal Trust with a short position of US Dollar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tidal Trust and US Dollar.

Diversification Opportunities for Tidal Trust and US Dollar

0.7

Correlation Coefficient

Tidal Trust  US Dollar

Poor diversification

The 3 months correlation between Tidal and DXY is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Tidal Trust II and US Dollar Currency in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Dollar Currency and Tidal Trust 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 Tidal Trust II are associated (or correlated) with US Dollar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Dollar Currency has no effect on the direction of Tidal Trust i.e., Tidal Trust and US Dollar go up and down completely randomly.

Pair Corralation between Tidal Trust and US Dollar

Considering the 90-day investment horizon Tidal Trust II is expected to generate 5.7 times more return on investment than US Dollar. However, Tidal Trust is 5.7 times more volatile than US Dollar Currency. It trades about 0.09 of its potential returns per unit of risk. US Dollar Currency is currently generating about 0.05 per unit of risk. If you would invest  1,454  in Tidal Trust II on October 9, 2024 and sell it today you would earn a total of  486.00  from holding Tidal Trust II or generate 33.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.06%
Values	Daily Returns

Tidal Trust II  vs.  US Dollar Currency

Pair Trading with Tidal Trust and US Dollar

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

The idea behind Tidal Trust II and US Dollar Currency 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.