Can any of the company-specific risk be diversified away by investing in both Nuveen Mortgage and ProShares Hedge 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 Nuveen Mortgage and ProShares Hedge into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nuveen Mortgage Opportunity and ProShares Hedge Replication, you can compare the effects of market volatilities on Nuveen Mortgage and ProShares Hedge 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 Nuveen Mortgage with a short position of ProShares Hedge. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nuveen Mortgage and ProShares Hedge.
Diversification Opportunities for Nuveen Mortgage and ProShares Hedge
The 3 months correlation between Nuveen and ProShares is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Nuveen Mortgage Opportunity and ProShares Hedge Replication in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProShares Hedge Repl and Nuveen Mortgage 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 Nuveen Mortgage Opportunity are associated (or correlated) with ProShares Hedge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProShares Hedge Repl has no effect on the direction of Nuveen Mortgage i.e., Nuveen Mortgage and ProShares Hedge go up and down completely randomly.
Pair Corralation between Nuveen Mortgage and ProShares Hedge
Considering the 90-day investment horizon Nuveen Mortgage Opportunity is expected to generate 3.46 times more return on investment than ProShares Hedge. However, Nuveen Mortgage is 3.46 times more volatile than ProShares Hedge Replication. It trades about 0.31 of its potential returns per unit of risk. ProShares Hedge Replication is currently generating about 0.21 per unit of risk. If you would invest 1,595 in Nuveen Mortgage Opportunity on September 7, 2023 and sell it today you would earn a total of 113.00 from holding Nuveen Mortgage Opportunity or generate 7.08% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Nuveen Mortgage Opportunity are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak essential indicators, Nuveen Mortgage may actually be approaching a critical reversion point that can send shares even higher in January 2024.
Compared to the overall equity markets, risk-adjusted returns on investments in ProShares Hedge Replication are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, ProShares Hedge is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.
Nuveen Mortgage and ProShares Hedge Volatility Contrast
Predicted Return Density
Pair Trading with Nuveen Mortgage and ProShares Hedge
The main advantage of trading using opposite Nuveen Mortgage and ProShares Hedge positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nuveen Mortgage position performs unexpectedly, ProShares Hedge 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 ProShares Hedge will offset losses from the drop in ProShares Hedge's long position.
The idea behind Nuveen Mortgage Opportunity and ProShares Hedge Replication 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
Find actively-traded funds from around the world traded on over 30 global exchanges
Macroaxis helps investors of all levels and skills to maximize the upside of all their holdings and minimize the risk
associated with market volatility, economic swings, and company-specific events. View terms and conditions