Correlation Between IPath Series and ETRACS Monthly

Can any of the company-specific risk be diversified away by investing in both IPath Series and ETRACS Monthly 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 IPath Series and ETRACS Monthly into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between iPath Series B and ETRACS Monthly Pay, you can compare the effects of market volatilities on IPath Series and ETRACS Monthly 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 IPath Series with a short position of ETRACS Monthly. Check out your portfolio center. Please also check ongoing floating volatility patterns of IPath Series and ETRACS Monthly.

Diversification Opportunities for IPath Series and ETRACS Monthly

-0.62

Correlation Coefficient

IPath Series  ETRACS Monthly

Excellent diversification

The 3 months correlation between IPath and ETRACS is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding iPath Series B and ETRACS Monthly Pay in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETRACS Monthly Pay and IPath Series 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 iPath Series B are associated (or correlated) with ETRACS Monthly. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETRACS Monthly Pay has no effect on the direction of IPath Series i.e., IPath Series and ETRACS Monthly go up and down completely randomly.

Pair Corralation between IPath Series and ETRACS Monthly

Considering the 90-day investment horizon iPath Series B is expected to under-perform the ETRACS Monthly. In addition to that, IPath Series is 4.87 times more volatile than ETRACS Monthly Pay. It trades about -0.08 of its total potential returns per unit of risk. ETRACS Monthly Pay is currently generating about 0.04 per unit of volatility. If you would invest  1,970  in ETRACS Monthly Pay on September 27, 2024 and sell it today you would earn a total of  26.10  from holding ETRACS Monthly Pay or generate 1.32% return on investment over 90 days.

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

iPath Series B  vs.  ETRACS Monthly Pay

iPath Series B

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iPath Series B has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

ETRACS Monthly Pay

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ETRACS Monthly Pay are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, ETRACS Monthly is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IPath Series and ETRACS Monthly

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

The idea behind iPath Series B and ETRACS Monthly Pay 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.