Can any of the company-specific risk be diversified away by investing in both Freedom Day and SPDR Portfolio 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 Freedom Day and SPDR Portfolio into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Freedom Day Dividend and SPDR Portfolio Emerging, you can compare the effects of market volatilities on Freedom Day and SPDR Portfolio 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 Freedom Day with a short position of SPDR Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Freedom Day and SPDR Portfolio.
Diversification Opportunities for Freedom Day and SPDR Portfolio
The 3 months correlation between Freedom and SPDR is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Freedom Day Dividend and SPDR Portfolio Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Portfolio Emerging and Freedom Day 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 Freedom Day Dividend are associated (or correlated) with SPDR Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Portfolio Emerging has no effect on the direction of Freedom Day i.e., Freedom Day and SPDR Portfolio go up and down completely randomly.
Pair Corralation between Freedom Day and SPDR Portfolio
Given the investment horizon of 90 days Freedom Day Dividend is expected to generate 0.86 times more return on investment than SPDR Portfolio. However, Freedom Day Dividend is 1.17 times less risky than SPDR Portfolio. It trades about -0.1 of its potential returns per unit of risk. SPDR Portfolio Emerging is currently generating about -0.13 per unit of risk. If you would invest 2,626 in Freedom Day Dividend on June 24, 2023 and sell it today you would lose (37.00) from holding Freedom Day Dividend or give up 1.41% of portfolio value over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Freedom Day Dividend are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Freedom Day is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.
Over the last 90 days SPDR Portfolio Emerging has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, SPDR Portfolio is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the insiders.
Freedom Day and SPDR Portfolio Volatility Contrast
Predicted Return Density
Pair Trading with Freedom Day and SPDR Portfolio
The main advantage of trading using opposite Freedom Day and SPDR Portfolio positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Freedom Day position performs unexpectedly, SPDR Portfolio 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 SPDR Portfolio will offset losses from the drop in SPDR Portfolio's long position.
The idea behind Freedom Day Dividend and SPDR Portfolio Emerging 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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