Correlation Between Leverage Shares and Vanguard

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

By analyzing existing cross correlation between Leverage Shares 3x and Vanguard SP 500, you can compare the effects of market volatilities on Leverage Shares and Vanguard 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 Leverage Shares with a short position of Vanguard. Check out your portfolio center. Please also check ongoing floating volatility patterns of Leverage Shares and Vanguard.

Diversification Opportunities for Leverage Shares and Vanguard

0.25

Correlation Coefficient

Leverage Shares  Vanguard

Modest diversification

The 3 months correlation between Leverage and Vanguard is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Leverage Shares 3x and Vanguard SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP 500 and Leverage 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 Leverage Shares 3x are associated (or correlated) with Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP 500 has no effect on the direction of Leverage Shares i.e., Leverage Shares and Vanguard go up and down completely randomly.

Pair Corralation between Leverage Shares and Vanguard

Assuming the 90 days trading horizon Leverage Shares 3x is expected to generate 230.7 times more return on investment than Vanguard. However, Leverage Shares is 230.7 times more volatile than Vanguard SP 500. It trades about 0.16 of its potential returns per unit of risk. Vanguard SP 500 is currently generating about 0.28 per unit of risk. If you would invest  13.00  in Leverage Shares 3x on September 18, 2024 and sell it today you would earn a total of  2,428  from holding Leverage Shares 3x or generate 18676.92% return on investment over 90 days.

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

Leverage Shares 3x  vs.  Vanguard SP 500

Leverage Shares 3x

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Leverage Shares 3x are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Leverage Shares unveiled solid returns over the last few months and may actually be approaching a breakup point.

Vanguard SP 500

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP 500 are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Vanguard unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Leverage Shares and Vanguard

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

The idea behind Leverage Shares 3x and Vanguard SP 500 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.