Correlation Between Volatility Shares and Main Sector

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

By analyzing existing cross correlation between Volatility Shares Trust and Main Sector Rotation, you can compare the effects of market volatilities on Volatility Shares and Main Sector 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 Volatility Shares with a short position of Main Sector. Check out your portfolio center. Please also check ongoing floating volatility patterns of Volatility Shares and Main Sector.

Diversification Opportunities for Volatility Shares and Main Sector

0.79

Correlation Coefficient

Volatility Shares  Main Sector

Poor diversification

The 3 months correlation between Volatility and Main is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Volatility Shares Trust and Main Sector Rotation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Main Sector Rotation and Volatility Shares 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 Volatility Shares Trust are associated (or correlated) with Main Sector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Main Sector Rotation has no effect on the direction of Volatility Shares i.e., Volatility Shares and Main Sector go up and down completely randomly.

Pair Corralation between Volatility Shares and Main Sector

Given the investment horizon of 90 days Volatility Shares Trust is expected to generate 7.25 times more return on investment than Main Sector. However, Volatility Shares is 7.25 times more volatile than Main Sector Rotation. It trades about 0.25 of its potential returns per unit of risk. Main Sector Rotation is currently generating about 0.19 per unit of risk. If you would invest  2,386  in Volatility Shares Trust on September 3, 2024 and sell it today you would earn a total of  3,634  from holding Volatility Shares Trust or generate 152.31% return on investment over 90 days.

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

Volatility Shares Trust  vs.  Main Sector Rotation

Volatility Shares Trust

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Volatility Shares Trust are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Volatility Shares showed solid returns over the last few months and may actually be approaching a breakup point.

Main Sector Rotation

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Main Sector Rotation are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, Main Sector may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Volatility Shares and Main Sector

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

The idea behind Volatility Shares Trust and Main Sector Rotation 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 Stocks Directory module to find actively traded stocks across global markets.