Can any of the company-specific risk be diversified away by investing in both Simplify Macro and IQ Real 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 Simplify Macro and IQ Real into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Simplify Macro Strategy and IQ Real Return, you can compare the effects of market volatilities on Simplify Macro and IQ Real 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 Simplify Macro with a short position of IQ Real. Check out your portfolio center. Please also check ongoing floating volatility patterns of Simplify Macro and IQ Real.
Diversification Opportunities for Simplify Macro and IQ Real
The 3 months correlation between Simplify and CPI is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Simplify Macro Strategy and IQ Real Return in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IQ Real Return and Simplify Macro 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 Simplify Macro Strategy are associated (or correlated) with IQ Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IQ Real Return has no effect on the direction of Simplify Macro i.e., Simplify Macro and IQ Real go up and down completely randomly.
Pair Corralation between Simplify Macro and IQ Real
Considering the 90-day investment horizon Simplify Macro is expected to generate 18.68 times less return on investment than IQ Real. In addition to that, Simplify Macro is 1.09 times more volatile than IQ Real Return. It trades about 0.02 of its total potential returns per unit of risk. IQ Real Return is currently generating about 0.36 per unit of volatility. If you would invest 2,493 in IQ Real Return on September 2, 2023 and sell it today you would earn a total of 70.00 from holding IQ Real Return or generate 2.81% return on investment over 90 days.
Over the last 90 days Simplify Macro Strategy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, Simplify Macro is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.
Compared to the overall equity markets, risk-adjusted returns on investments in IQ Real Return are ranked lower than 2 (%) 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 current stock price confusion, may contribute to short-horizon losses for the traders.
The main advantage of trading using opposite Simplify Macro and IQ Real positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Simplify Macro position performs unexpectedly, IQ Real 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 IQ Real will offset losses from the drop in IQ Real's long position.
The idea behind Simplify Macro Strategy and IQ Real Return 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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