Correlation Between Leverage Shares and Legal General
Can any of the company-specific risk be diversified away by investing in both Leverage Shares and Legal General 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 Leverage Shares and Legal General into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Leverage Shares 3x and Legal General UCITS, you can compare the effects of market volatilities on Leverage Shares and Legal General 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 Leverage Shares with a short position of Legal General. Check out your portfolio center. Please also check ongoing floating volatility patterns of Leverage Shares and Legal General.
Diversification Opportunities for Leverage Shares and Legal General
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Leverage and Legal is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Leverage Shares 3x and Legal General UCITS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legal General UCITS and Leverage Shares 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 Leverage Shares 3x are associated (or correlated) with Legal General. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Legal General UCITS has no effect on the direction of Leverage Shares i.e., Leverage Shares and Legal General go up and down completely randomly.
Pair Corralation between Leverage Shares and Legal General
Assuming the 90 days trading horizon Leverage Shares 3x is expected to generate 6.54 times more return on investment than Legal General. However, Leverage Shares is 6.54 times more volatile than Legal General UCITS. It trades about 0.25 of its potential returns per unit of risk. Legal General UCITS is currently generating about 0.39 per unit of risk. If you would invest 2,071 in Leverage Shares 3x on August 30, 2024 and sell it today you would earn a total of 1,123 from holding Leverage Shares 3x or generate 54.23% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
Leverage Shares 3x vs. Legal General UCITS
Performance |
| Timeline |
| Leverage Shares 3x |
| Legal General UCITS |
Leverage Shares and Legal General Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Leverage Shares and Legal General
The main advantage of trading using opposite Leverage Shares and Legal General positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Leverage Shares position performs unexpectedly, Legal General 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 Legal General will offset losses from the drop in Legal General's long position.| Leverage Shares vs. Leverage Shares 3x | Leverage Shares vs. Leverage Shares 3x | Leverage Shares vs. Leverage Shares 3x | Leverage Shares vs. Leverage Shares 3x |
| Legal General vs. Legal General UCITS | Legal General vs. Legal General UCITS | Legal General vs. Legal General UCITS | Legal General vs. Legal General UCITS |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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