Can any of the company-specific risk be diversified away by investing in both IQ Real and Tidal ETF 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 IQ Real and Tidal ETF into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between IQ Real Return and Tidal ETF Trust, you can compare the effects of market volatilities on IQ Real and Tidal ETF 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 IQ Real with a short position of Tidal ETF. Check out your portfolio center. Please also check ongoing floating volatility patterns of IQ Real and Tidal ETF.
Diversification Opportunities for IQ Real and Tidal ETF
The 3 months correlation between CPI and Tidal is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding IQ Real Return and Tidal ETF Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tidal ETF Trust and IQ Real 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 IQ Real Return are associated (or correlated) with Tidal ETF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tidal ETF Trust has no effect on the direction of IQ Real i.e., IQ Real and Tidal ETF go up and down completely randomly.
Considering the 90-day investment horizon IQ Real Return is expected to generate 0.33 times more return on investment than Tidal ETF. However, IQ Real Return is 3.03 times less risky than Tidal ETF. It trades about 0.06 of its potential returns per unit of risk. Tidal ETF Trust is currently generating about -0.02 per unit of risk. If you would invest 2,432 in IQ Real Return on September 7, 2023 and sell it today you would earn a total of 127.00 from holding IQ Real Return or generate 5.22% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in IQ Real Return are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, IQ Real is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.
Over the last 90 days Tidal ETF Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Tidal ETF is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.
The main advantage of trading using opposite IQ Real and Tidal ETF positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IQ Real position performs unexpectedly, Tidal ETF 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 Tidal ETF will offset losses from the drop in Tidal ETF's long position.
The idea behind IQ Real Return and Tidal ETF Trust 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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