Correlation Between True USD and HEDG

Can any of the company-specific risk be diversified away by investing in both True USD and HEDG 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 True USD and HEDG into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between True USD and HEDG, you can compare the effects of market volatilities on True USD and HEDG 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 True USD with a short position of HEDG. Check out your portfolio center. Please also check ongoing floating volatility patterns of True USD and HEDG.

Diversification Opportunities for True USD and HEDG

0.27

Correlation Coefficient

True USD  HEDG

Modest diversification

The 3 months correlation between True and HEDG is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding True USD and HEDG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HEDG and True USD 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 True USD are associated (or correlated) with HEDG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HEDG has no effect on the direction of True USD i.e., True USD and HEDG go up and down completely randomly.

Pair Corralation between True USD and HEDG

Assuming the 90 days trading horizon True USD is expected to generate 3184.25 times less return on investment than HEDG. But when comparing it to its historical volatility, True USD is 74.36 times less risky than HEDG. It trades about 0.0 of its potential returns per unit of risk. HEDG is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  12.00  in HEDG on January 30, 2024 and sell it today you would lose (10.39) from holding HEDG or give up 86.58% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

True USD  vs.  HEDG

True USD

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in True USD are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, True USD is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

HEDG

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HEDG are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, HEDG exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with True USD and HEDG

The main advantage of trading using opposite True USD and HEDG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if True USD position performs unexpectedly, HEDG 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 HEDG will offset losses from the drop in HEDG's long position.

The idea behind True USD and HEDG 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 CEOs Directory module to screen CEOs from public companies around the world.