Correlation Between Guggenheim Directional and Guggenheim Market

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

By analyzing existing cross correlation between Guggenheim Directional Allocation and Guggenheim Market Neutral, you can compare the effects of market volatilities on Guggenheim Directional and Guggenheim Market 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 Guggenheim Directional with a short position of Guggenheim Market. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guggenheim Directional and Guggenheim Market.

Diversification Opportunities for Guggenheim Directional and Guggenheim Market

0.9

Correlation Coefficient

Guggenheim Directional  Guggenheim Market

Almost no diversification

The 3 months correlation between Guggenheim and Guggenheim is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Guggenheim Directional Allocat and Guggenheim Market Neutral in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guggenheim Market Neutral and Guggenheim Directional 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 Guggenheim Directional Allocation are associated (or correlated) with Guggenheim Market. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guggenheim Market Neutral has no effect on the direction of Guggenheim Directional i.e., Guggenheim Directional and Guggenheim Market go up and down completely randomly.

Pair Corralation between Guggenheim Directional and Guggenheim Market

Assuming the 90 days horizon Guggenheim Directional Allocation is expected to generate 6.4 times more return on investment than Guggenheim Market. However, Guggenheim Directional is 6.4 times more volatile than Guggenheim Market Neutral. It trades about 0.24 of its potential returns per unit of risk. Guggenheim Market Neutral is currently generating about 0.16 per unit of risk. If you would invest  1,779  in Guggenheim Directional Allocation on September 4, 2024 and sell it today you would earn a total of  192.00  from holding Guggenheim Directional Allocation or generate 10.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Guggenheim Directional Allocat  vs.  Guggenheim Market Neutral

Guggenheim Directional

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Guggenheim Directional Allocation are ranked lower than 18 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Guggenheim Directional may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Guggenheim Market Neutral

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guggenheim Market Neutral are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Guggenheim Market is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Guggenheim Directional and Guggenheim Market

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

The idea behind Guggenheim Directional Allocation and Guggenheim Market Neutral 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.