Correlation Between VictoryShares USAA and Overlay Shares

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

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

Diversification Opportunities for VictoryShares USAA and Overlay Shares

0.93

Correlation Coefficient

VictoryShares USAA  Overlay Shares

Almost no diversification

The 3 months correlation between VictoryShares and Overlay is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding VictoryShares USAA Core and Overlay Shares Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Overlay Shares Core and VictoryShares USAA 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 VictoryShares USAA Core 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 Core has no effect on the direction of VictoryShares USAA i.e., VictoryShares USAA and Overlay Shares go up and down completely randomly.

Pair Corralation between VictoryShares USAA and Overlay Shares

Given the investment horizon of 90 days VictoryShares USAA Core is expected to under-perform the Overlay Shares. But the etf apears to be less risky and, when comparing its historical volatility, VictoryShares USAA Core is 1.1 times less risky than Overlay Shares. The etf trades about -0.08 of its potential returns per unit of risk. The Overlay Shares Core is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  2,116  in Overlay Shares Core on September 5, 2024 and sell it today you would lose (11.00) from holding Overlay Shares Core or give up 0.52% of portfolio value over 90 days.

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

VictoryShares USAA Core  vs.  Overlay Shares Core

VictoryShares USAA Core

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VictoryShares USAA Core has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, VictoryShares USAA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Overlay Shares Core

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Overlay Shares Core has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Overlay Shares is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with VictoryShares USAA and Overlay Shares

The main advantage of trading using opposite VictoryShares USAA and Overlay Shares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VictoryShares USAA 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 VictoryShares USAA Core and Overlay Shares Core 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.