Correlation Between Guggenheim Directional and Guggenheim Multi-hedge

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

By analyzing existing cross correlation between Guggenheim Directional Allocation and Guggenheim Multi Hedge Strategies, you can compare the effects of market volatilities on Guggenheim Directional and Guggenheim Multi-hedge 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 Guggenheim Directional with a short position of Guggenheim Multi-hedge. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guggenheim Directional and Guggenheim Multi-hedge.

Diversification Opportunities for Guggenheim Directional and Guggenheim Multi-hedge

0.6

Correlation Coefficient

Guggenheim Directional  Guggenheim Multi-hedge

Poor diversification

The 3 months correlation between Guggenheim and Guggenheim is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Guggenheim Directional Allocat and Guggenheim Multi Hedge Strateg in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guggenheim Multi Hedge and Guggenheim Directional 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 Guggenheim Directional Allocation are associated (or correlated) with Guggenheim Multi-hedge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guggenheim Multi Hedge has no effect on the direction of Guggenheim Directional i.e., Guggenheim Directional and Guggenheim Multi-hedge go up and down completely randomly.

Pair Corralation between Guggenheim Directional and Guggenheim Multi-hedge

Assuming the 90 days horizon Guggenheim Directional Allocation is expected to under-perform the Guggenheim Multi-hedge. In addition to that, Guggenheim Directional is 2.39 times more volatile than Guggenheim Multi Hedge Strategies. It trades about -0.08 of its total potential returns per unit of risk. Guggenheim Multi Hedge Strategies is currently generating about -0.16 per unit of volatility. If you would invest  2,493  in Guggenheim Multi Hedge Strategies on December 24, 2024 and sell it today you would lose (77.00) from holding Guggenheim Multi Hedge Strategies or give up 3.09% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Guggenheim Directional Allocat  vs.  Guggenheim Multi Hedge Strateg

Guggenheim Directional

Risk-Adjusted Performance

Very Weak

Over the last 90 days Guggenheim Directional Allocation has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Guggenheim Directional is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Guggenheim Multi Hedge

Risk-Adjusted Performance

Very Weak

Over the last 90 days Guggenheim Multi Hedge Strategies has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Guggenheim Multi-hedge is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Guggenheim Directional and Guggenheim Multi-hedge

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

The idea behind Guggenheim Directional Allocation and Guggenheim Multi Hedge Strategies 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.