Correlation Between VanEck Defense and IncomeShares Alphabet

Can any of the company-specific risk be diversified away by investing in both VanEck Defense and IncomeShares Alphabet 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 VanEck Defense and IncomeShares Alphabet into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between VanEck Defense ETF and IncomeShares Alphabet Options, you can compare the effects of market volatilities on VanEck Defense and IncomeShares Alphabet 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 VanEck Defense with a short position of IncomeShares Alphabet. Check out your portfolio center. Please also check ongoing floating volatility patterns of VanEck Defense and IncomeShares Alphabet.

Diversification Opportunities for VanEck Defense and IncomeShares Alphabet

-0.41

Correlation Coefficient

VanEck Defense  IncomeShares Alphabet

Very good diversification

The 3 months correlation between VanEck and IncomeShares is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding VanEck Defense ETF and IncomeShares Alphabet Options in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IncomeShares Alphabet and VanEck Defense 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 VanEck Defense ETF are associated (or correlated) with IncomeShares Alphabet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IncomeShares Alphabet has no effect on the direction of VanEck Defense i.e., VanEck Defense and IncomeShares Alphabet go up and down completely randomly.

Pair Corralation between VanEck Defense and IncomeShares Alphabet

Assuming the 90 days trading horizon VanEck Defense is expected to generate 2.27 times less return on investment than IncomeShares Alphabet. But when comparing it to its historical volatility, VanEck Defense ETF is 1.37 times less risky than IncomeShares Alphabet. It trades about 0.13 of its potential returns per unit of risk. IncomeShares Alphabet Options is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1,006  in IncomeShares Alphabet Options on September 30, 2024 and sell it today you would earn a total of  94.00  from holding IncomeShares Alphabet Options or generate 9.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	7.69%
Values	Daily Returns

VanEck Defense ETF  vs.  IncomeShares Alphabet Options

VanEck Defense ETF

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Defense ETF are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, VanEck Defense may actually be approaching a critical reversion point that can send shares even higher in January 2025.

IncomeShares Alphabet

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in IncomeShares Alphabet Options are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical and fundamental indicators, IncomeShares Alphabet exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with VanEck Defense and IncomeShares Alphabet

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

The idea behind VanEck Defense ETF and IncomeShares Alphabet Options 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.