Correlation Between Ultrashort Dow and Live Oak

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

By analyzing existing cross correlation between Ultrashort Dow 30 and Live Oak Health, you can compare the effects of market volatilities on Ultrashort Dow and Live Oak 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 Ultrashort Dow with a short position of Live Oak. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ultrashort Dow and Live Oak.

Diversification Opportunities for Ultrashort Dow and Live Oak

-0.22

Correlation Coefficient

Ultrashort Dow  Live Oak

Very good diversification

The 3 months correlation between Ultrashort and Live is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Ultrashort Dow 30 and Live Oak Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Live Oak Health and Ultrashort Dow 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 Ultrashort Dow 30 are associated (or correlated) with Live Oak. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Live Oak Health has no effect on the direction of Ultrashort Dow i.e., Ultrashort Dow and Live Oak go up and down completely randomly.

Pair Corralation between Ultrashort Dow and Live Oak

Assuming the 90 days horizon Ultrashort Dow 30 is expected to generate 1.68 times more return on investment than Live Oak. However, Ultrashort Dow is 1.68 times more volatile than Live Oak Health. It trades about 0.05 of its potential returns per unit of risk. Live Oak Health is currently generating about -0.25 per unit of risk. If you would invest  1,023  in Ultrashort Dow 30 on October 7, 2024 and sell it today you would earn a total of  29.00  from holding Ultrashort Dow 30 or generate 2.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Ultrashort Dow 30  vs.  Live Oak Health

Ultrashort Dow 30

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ultrashort Dow 30 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Ultrashort Dow is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Live Oak Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Live Oak Health has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Ultrashort Dow and Live Oak

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

The idea behind Ultrashort Dow 30 and Live Oak Health 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.