Correlation Between Guggenheim Macro and DOW

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Can any of the company-specific risk be diversified away by investing in both Guggenheim Macro and DOW 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 Macro and DOW into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Guggenheim Macro Opportunities and DOW, you can compare the effects of market volatilities on Guggenheim Macro and DOW 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 Macro with a short position of DOW. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guggenheim Macro and DOW.

Diversification Opportunities for Guggenheim Macro and DOW

 0.87 Correlation Coefficient

Very poor diversification

The 3 months correlation between Guggenheim and DOW is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Guggenheim Macro Opportunities and DOW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DOW and Guggenheim 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 Guggenheim Macro Opportunities are associated (or correlated) with DOW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DOW has no effect on the direction of Guggenheim Macro i.e., Guggenheim Macro and DOW go up and down completely randomly.

Pair Corralation between Guggenheim Macro and DOW

Assuming the 90 days horizon Guggenheim Macro is expected to generate 5.4 times less return on investment than DOW. But when comparing it to its historical volatility, Guggenheim Macro Opportunities is 4.82 times less risky than DOW. It trades about 0.03 of its potential returns per unit of risk. DOW is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,784,491  in DOW on May 9, 2022 and sell it today you would earn a total of  495,856  from holding DOW or generate 17.81% return on investment over 90 days.
 Time Period 3 Months [change] Direction Moves Together Strength Strong Accuracy 99.8% Values Daily Returns

Guggenheim Macro Opportunities  vs.  DOW

 Performance (%)
 Timeline

Guggenheim Macro and DOW Volatility Contrast

 Predicted Return Density
 Returns

DOW

 Walker Dunlop vs. DOW Microsoft Corp vs. DOW Amgen vs. DOW Amazon vs. DOW Oracle vs. DOW Visteon Corp vs. DOW Universal Logis vs. DOW QK International vs. DOW Tejon Ranch vs. DOW Kennedy-Wilson Holdings vs. DOW Manufactured Housing vs. DOW
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against DOW as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. DOW's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, DOW's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to DOW.

Pair Trading with Guggenheim Macro and DOW

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

Guggenheim Macro Opportunities

Pair trading matchups for Guggenheim Macro

The idea behind Guggenheim Macro Opportunities and DOW 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.

DOW

Oracle vs. DOW
Universal Logis vs. DOW
Catalyst Pharm vs. DOW
Tejon Ranch vs. DOW
Manufactured Housing vs. DOW
Franklin Covey vs. DOW
Amgen vs. DOW
Vmware vs. DOW
Alphabet vs. DOW
Citigroup vs. DOW
Amazon vs. DOW
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against DOW as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. DOW's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, DOW's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to DOW.
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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