Correlation Between 2x Long and IShares 1

Can any of the company-specific risk be diversified away by investing in both 2x Long and IShares 1 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 2x Long and IShares 1 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 2x Long VIX and iShares 1 3 Year, you can compare the effects of market volatilities on 2x Long and IShares 1 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 2x Long with a short position of IShares 1. Check out your portfolio center. Please also check ongoing floating volatility patterns of 2x Long and IShares 1.

Diversification Opportunities for 2x Long and IShares 1

0.03

Correlation Coefficient

2x Long  IShares 1

Significant diversification

The 3 months correlation between UVIX and IShares is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding 2x Long VIX and iShares 1 3 Year in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares 1 3 and 2x Long 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 2x Long VIX are associated (or correlated) with IShares 1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares 1 3 has no effect on the direction of 2x Long i.e., 2x Long and IShares 1 go up and down completely randomly.

Pair Corralation between 2x Long and IShares 1

Given the investment horizon of 90 days 2x Long VIX is expected to generate 25.05 times more return on investment than IShares 1. However, 2x Long is 25.05 times more volatile than iShares 1 3 Year. It trades about 0.03 of its potential returns per unit of risk. iShares 1 3 Year is currently generating about 0.08 per unit of risk. If you would invest  5,870  in 2x Long VIX on March 5, 2025 and sell it today you would lose (3,118) from holding 2x Long VIX or give up 53.12% of portfolio value over 90 days.

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

2x Long VIX  vs.  iShares 1 3 Year

2x Long VIX

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in 2x Long VIX are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward indicators, 2x Long showed solid returns over the last few months and may actually be approaching a breakup point.

iShares 1 3

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares 1 3 Year are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical indicators, IShares 1 is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with 2x Long and IShares 1

The main advantage of trading using opposite 2x Long and IShares 1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 2x Long position performs unexpectedly, IShares 1 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 IShares 1 will offset losses from the drop in IShares 1's long position.

The idea behind 2x Long VIX and iShares 1 3 Year 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..