Correlation Between VPC Specialty and Leverage Shares

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

By analyzing existing cross correlation between VPC Specialty Lending and Leverage Shares 2x, you can compare the effects of market volatilities on VPC Specialty and Leverage 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 VPC Specialty with a short position of Leverage Shares. Check out your portfolio center. Please also check ongoing floating volatility patterns of VPC Specialty and Leverage Shares.

Diversification Opportunities for VPC Specialty and Leverage Shares

0.78

Correlation Coefficient

VPC Specialty  Leverage Shares

Poor diversification

The 3 months correlation between VPC and Leverage is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding VPC Specialty Lending and Leverage Shares 2x in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leverage Shares 2x and VPC Specialty 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 VPC Specialty Lending are associated (or correlated) with Leverage Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leverage Shares 2x has no effect on the direction of VPC Specialty i.e., VPC Specialty and Leverage Shares go up and down completely randomly.

Pair Corralation between VPC Specialty and Leverage Shares

Assuming the 90 days trading horizon VPC Specialty is expected to generate 2.51 times less return on investment than Leverage Shares. But when comparing it to its historical volatility, VPC Specialty Lending is 1.13 times less risky than Leverage Shares. It trades about 0.13 of its potential returns per unit of risk. Leverage Shares 2x is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  4,160  in Leverage Shares 2x on April 25, 2025 and sell it today you would earn a total of  2,590  from holding Leverage Shares 2x or generate 62.26% return on investment over 90 days.

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

VPC Specialty Lending  vs.  Leverage Shares 2x

VPC Specialty Lending

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in VPC Specialty Lending are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, VPC Specialty exhibited solid returns over the last few months and may actually be approaching a breakup point.

Leverage Shares 2x

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Leverage Shares 2x are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Leverage Shares exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with VPC Specialty and Leverage Shares

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

The idea behind VPC Specialty Lending and Leverage Shares 2x 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.