Can any of the company-specific risk be diversified away by investing in both Simplify Macro 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 Simplify Macro and Tidal ETF 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 Tidal ETF Trust, you can compare the effects of market volatilities on Simplify Macro 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 Simplify Macro with a short position of Tidal ETF. Check out your portfolio center. Please also check ongoing floating volatility patterns of Simplify Macro and Tidal ETF.
Diversification Opportunities for Simplify Macro and Tidal ETF
The 3 months correlation between Simplify and Tidal is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Simplify Macro Strategy 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 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 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 Simplify Macro i.e., Simplify Macro and Tidal ETF go up and down completely randomly.
Pair Corralation between Simplify Macro and Tidal ETF
Considering the 90-day investment horizon Simplify Macro is expected to generate 5.61 times less return on investment than Tidal ETF. But when comparing it to its historical volatility, Simplify Macro Strategy is 4.26 times less risky than Tidal ETF. It trades about 0.19 of its potential returns per unit of risk. Tidal ETF Trust is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest 1,208 in Tidal ETF Trust on September 7, 2023 and sell it today you would earn a total of 79.00 from holding Tidal ETF Trust or generate 6.54% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Simplify Macro Strategy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.
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 Simplify Macro and Tidal ETF positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Simplify Macro 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 Simplify Macro Strategy 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.
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