Correlation Between ETRACS Monthly and FlexShares Morningstar

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

Diversification Opportunities for ETRACS Monthly and FlexShares Morningstar

0.8
  Correlation Coefficient

Very poor diversification

The 3 months correlation between ETRACS and FlexShares is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding ETRACS Monthly Pay and FlexShares Morningstar Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Morningstar and ETRACS Monthly 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 ETRACS Monthly Pay are associated (or correlated) with FlexShares Morningstar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Morningstar has no effect on the direction of ETRACS Monthly i.e., ETRACS Monthly and FlexShares Morningstar go up and down completely randomly.

Pair Corralation between ETRACS Monthly and FlexShares Morningstar

Given the investment horizon of 90 days ETRACS Monthly is expected to generate 1.74 times less return on investment than FlexShares Morningstar. In addition to that, ETRACS Monthly is 1.19 times more volatile than FlexShares Morningstar Market. It trades about 0.17 of its total potential returns per unit of risk. FlexShares Morningstar Market is currently generating about 0.35 per unit of volatility. If you would invest  21,189  in FlexShares Morningstar Market on September 2, 2024 and sell it today you would earn a total of  1,457  from holding FlexShares Morningstar Market or generate 6.88% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

ETRACS Monthly Pay  vs.  FlexShares Morningstar Market

 Performance 
       Timeline  
ETRACS Monthly Pay 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in ETRACS Monthly Pay are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, ETRACS Monthly may actually be approaching a critical reversion point that can send shares even higher in January 2025.
FlexShares Morningstar 

Risk-Adjusted Performance

16 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares Morningstar Market are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady essential indicators, FlexShares Morningstar may actually be approaching a critical reversion point that can send shares even higher in January 2025.

ETRACS Monthly and FlexShares Morningstar Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with ETRACS Monthly and FlexShares Morningstar

The main advantage of trading using opposite ETRACS Monthly and FlexShares Morningstar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ETRACS Monthly position performs unexpectedly, FlexShares Morningstar 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 FlexShares Morningstar will offset losses from the drop in FlexShares Morningstar's long position.
The idea behind ETRACS Monthly Pay and FlexShares Morningstar Market 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.
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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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.

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