Correlation Between Inverse Government and Dow 2x
Can any of the company-specific risk be diversified away by investing in both Inverse Government and Dow 2x 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 Inverse Government and Dow 2x into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Inverse Government Long and Dow 2x Strategy, you can compare the effects of market volatilities on Inverse Government and Dow 2x 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 Inverse Government with a short position of Dow 2x. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inverse Government and Dow 2x.
Diversification Opportunities for Inverse Government and Dow 2x
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Inverse and Dow is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Inverse Government Long and Dow 2x Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow 2x Strategy and Inverse Government 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 Inverse Government Long are associated (or correlated) with Dow 2x. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow 2x Strategy has no effect on the direction of Inverse Government i.e., Inverse Government and Dow 2x go up and down completely randomly.
Pair Corralation between Inverse Government and Dow 2x
Assuming the 90 days horizon Inverse Government is expected to generate 5.33 times less return on investment than Dow 2x. But when comparing it to its historical volatility, Inverse Government Long is 2.16 times less risky than Dow 2x. It trades about 0.09 of its potential returns per unit of risk. Dow 2x Strategy is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 17,346 in Dow 2x Strategy on August 27, 2024 and sell it today you would earn a total of 1,502 from holding Dow 2x Strategy or generate 8.66% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Inverse Government Long vs. Dow 2x Strategy
Performance |
| Timeline |
| Inverse Government Long |
| Dow 2x Strategy |
Inverse Government and Dow 2x Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Inverse Government and Dow 2x
The main advantage of trading using opposite Inverse Government and Dow 2x positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Inverse Government position performs unexpectedly, Dow 2x 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 Dow 2x will offset losses from the drop in Dow 2x's long position.The idea behind Inverse Government Long and Dow 2x Strategy 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.
| Dow 2x vs. Sp 500 2x | Dow 2x vs. Inverse Dow 2x | Dow 2x vs. Nasdaq 100 2x Strategy | Dow 2x vs. Russell 2000 2x |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
Other Complementary Tools
| Companies Directory Evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals | |
| Equity Search Search for actively traded equities including funds and ETFs from over 30 global markets | |
| Price Transformation Use Price Transformation models to analyze the depth of different equity instruments across global markets | |
| Commodity Channel Use Commodity Channel Index to analyze current equity momentum | |
| Pair Correlation Compare performance and examine fundamental relationship between any two equity instruments |