Correlation Between Applied Finance and Nasdaq-100(r)
Can any of the company-specific risk be diversified away by investing in both Applied Finance and Nasdaq-100(r) 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 Applied Finance and Nasdaq-100(r) into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Applied Finance Explorer and Nasdaq 100 2x Strategy, you can compare the effects of market volatilities on Applied Finance and Nasdaq-100(r) 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 Applied Finance with a short position of Nasdaq-100(r). Check out your portfolio center. Please also check ongoing floating volatility patterns of Applied Finance and Nasdaq-100(r).
Diversification Opportunities for Applied Finance and Nasdaq-100(r)
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Applied and Nasdaq-100(r) is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Applied Finance Explorer and Nasdaq 100 2x Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq 100 2x and Applied Finance 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 Applied Finance Explorer are associated (or correlated) with Nasdaq-100(r). Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq 100 2x has no effect on the direction of Applied Finance i.e., Applied Finance and Nasdaq-100(r) go up and down completely randomly.
Pair Corralation between Applied Finance and Nasdaq-100(r)
Assuming the 90 days horizon Applied Finance is expected to generate 1.07 times less return on investment than Nasdaq-100(r). But when comparing it to its historical volatility, Applied Finance Explorer is 2.61 times less risky than Nasdaq-100(r). It trades about 0.21 of its potential returns per unit of risk. Nasdaq 100 2x Strategy is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 38,566 in Nasdaq 100 2x Strategy on November 3, 2024 and sell it today you would earn a total of 1,507 from holding Nasdaq 100 2x Strategy or generate 3.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Applied Finance Explorer vs. Nasdaq 100 2x Strategy
Performance |
| Timeline |
| Applied Finance Explorer |
| Nasdaq 100 2x |
Applied Finance and Nasdaq-100(r) Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Applied Finance and Nasdaq-100(r)
The main advantage of trading using opposite Applied Finance and Nasdaq-100(r) positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Finance position performs unexpectedly, Nasdaq-100(r) 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 Nasdaq-100(r) will offset losses from the drop in Nasdaq-100(r)'s long position.| Applied Finance vs. Thrivent Small Cap | Applied Finance vs. Applied Finance Select | Applied Finance vs. Parnassus Endeavor Fund | Applied Finance vs. Queens Road Small |
| Nasdaq-100(r) vs. Lsv Small Cap | Nasdaq-100(r) vs. Vanguard Small Cap Value | Nasdaq-100(r) vs. Mid Cap Growth Profund | Nasdaq-100(r) vs. Victory Rs Partners |
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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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