Correlation Between Listed Funds and Overlay Shares
Can any of the company-specific risk be diversified away by investing in both Listed Funds and Overlay Shares 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 Listed Funds and Overlay Shares into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Listed Funds Trust and Overlay Shares Core, you can compare the effects of market volatilities on Listed Funds and Overlay Shares 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 Listed Funds with a short position of Overlay Shares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Listed Funds and Overlay Shares.
Diversification Opportunities for Listed Funds and Overlay Shares
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Listed and Overlay is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Listed Funds Trust and Overlay Shares Core in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Overlay Shares Core and Listed Funds 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 Listed Funds Trust are associated (or correlated) with Overlay Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Overlay Shares Core has no effect on the direction of Listed Funds i.e., Listed Funds and Overlay Shares go up and down completely randomly.
Pair Corralation between Listed Funds and Overlay Shares
Considering the 90-day investment horizon Listed Funds is expected to generate 1.39 times less return on investment than Overlay Shares. But when comparing it to its historical volatility, Listed Funds Trust is 1.54 times less risky than Overlay Shares. It trades about 0.34 of its potential returns per unit of risk. Overlay Shares Core is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest 2,057 in Overlay Shares Core on September 2, 2024 and sell it today you would earn a total of 48.00 from holding Overlay Shares Core or generate 2.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Listed Funds Trust vs. Overlay Shares Core
Performance |
| Timeline |
| Listed Funds Trust |
| Overlay Shares Core |
Listed Funds and Overlay Shares Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Listed Funds and Overlay Shares
The main advantage of trading using opposite Listed Funds and Overlay Shares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Listed Funds position performs unexpectedly, Overlay Shares 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 Overlay Shares will offset losses from the drop in Overlay Shares' long position.| Listed Funds vs. Vanguard Intermediate Term Corporate | Listed Funds vs. Vanguard Short Term Bond | Listed Funds vs. Vanguard Long Term Corporate | Listed Funds vs. Vanguard Short Term Treasury |
| Overlay Shares vs. Overlay Shares Municipal | Overlay Shares vs. Overlay Shares Large | Overlay Shares vs. Overlay Shares Foreign | Overlay Shares vs. ClearShares Ultra Short Maturity |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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