Correlation Between Tidal Trust and US Treasury

Can any of the company-specific risk be diversified away by investing in both Tidal Trust and US Treasury 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 Tidal Trust and US Treasury into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tidal Trust II and US Treasury 5, you can compare the effects of market volatilities on Tidal Trust and US Treasury 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 Tidal Trust with a short position of US Treasury. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tidal Trust and US Treasury.

Diversification Opportunities for Tidal Trust and US Treasury

-0.16

Correlation Coefficient

Tidal Trust  US Treasury

Good diversification

The 3 months correlation between Tidal and UFIV is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Tidal Trust II and US Treasury 5 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Treasury 5 and Tidal Trust 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 Tidal Trust II are associated (or correlated) with US Treasury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Treasury 5 has no effect on the direction of Tidal Trust i.e., Tidal Trust and US Treasury go up and down completely randomly.

Pair Corralation between Tidal Trust and US Treasury

Given the investment horizon of 90 days Tidal Trust II is expected to generate 1.79 times more return on investment than US Treasury. However, Tidal Trust is 1.79 times more volatile than US Treasury 5. It trades about 0.14 of its potential returns per unit of risk. US Treasury 5 is currently generating about 0.15 per unit of risk. If you would invest  1,934  in Tidal Trust II on September 15, 2024 and sell it today you would earn a total of  20.00  from holding Tidal Trust II or generate 1.03% return on investment over 90 days.

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

Tidal Trust II  vs.  US Treasury 5

Tidal Trust II

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tidal Trust II are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Tidal Trust is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

US Treasury 5

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days US Treasury 5 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable forward indicators, US Treasury is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Tidal Trust and US Treasury

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

The idea behind Tidal Trust II and US Treasury 5 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.