Correlation Between Guggenheim Directional and Guggenheim Alpha
Can any of the company-specific risk be diversified away by investing in both Guggenheim Directional and Guggenheim Alpha 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 Guggenheim Directional and Guggenheim Alpha into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Guggenheim Directional Allocation and Guggenheim Alpha Opportunity, you can compare the effects of market volatilities on Guggenheim Directional and Guggenheim Alpha 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 Guggenheim Directional with a short position of Guggenheim Alpha. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guggenheim Directional and Guggenheim Alpha.
Diversification Opportunities for Guggenheim Directional and Guggenheim Alpha
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Guggenheim and Guggenheim is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Guggenheim Directional Allocat and Guggenheim Alpha Opportunity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guggenheim Alpha Opp and Guggenheim Directional 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 Guggenheim Directional Allocation are associated (or correlated) with Guggenheim Alpha. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guggenheim Alpha Opp has no effect on the direction of Guggenheim Directional i.e., Guggenheim Directional and Guggenheim Alpha go up and down completely randomly.
Pair Corralation between Guggenheim Directional and Guggenheim Alpha
Assuming the 90 days horizon Guggenheim Directional Allocation is expected to generate 1.53 times more return on investment than Guggenheim Alpha. However, Guggenheim Directional is 1.53 times more volatile than Guggenheim Alpha Opportunity. It trades about 0.19 of its potential returns per unit of risk. Guggenheim Alpha Opportunity is currently generating about 0.28 per unit of risk. If you would invest 1,890 in Guggenheim Directional Allocation on August 26, 2024 and sell it today you would earn a total of 60.00 from holding Guggenheim Directional Allocation or generate 3.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Guggenheim Directional Allocat vs. Guggenheim Alpha Opportunity
Performance |
| Timeline |
| Guggenheim Directional |
| Guggenheim Alpha Opp |
Guggenheim Directional and Guggenheim Alpha Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Guggenheim Directional and Guggenheim Alpha
The main advantage of trading using opposite Guggenheim Directional and Guggenheim Alpha positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Guggenheim Directional position performs unexpectedly, Guggenheim Alpha 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 Guggenheim Alpha will offset losses from the drop in Guggenheim Alpha's long position.The idea behind Guggenheim Directional Allocation and Guggenheim Alpha Opportunity 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.
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Guggenheim Alpha as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Guggenheim Alpha's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Guggenheim Alpha's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Guggenheim Alpha Opportunity.
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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