Correlation Between MicroSectors FANG and 2x Long
Can any of the company-specific risk be diversified away by investing in both MicroSectors FANG and 2x Long 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 MicroSectors FANG and 2x Long into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MicroSectors FANG Index and 2x Long VIX, you can compare the effects of market volatilities on MicroSectors FANG and 2x Long 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 MicroSectors FANG with a short position of 2x Long. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors FANG and 2x Long.
Diversification Opportunities for MicroSectors FANG and 2x Long
0.58 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between MicroSectors and UVIX is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and 2x Long VIX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 2x Long VIX and MicroSectors FANG 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 MicroSectors FANG Index are associated (or correlated) with 2x Long. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 2x Long VIX has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and 2x Long go up and down completely randomly.
Pair Corralation between MicroSectors FANG and 2x Long
Given the investment horizon of 90 days MicroSectors FANG Index is expected to generate 0.58 times more return on investment than 2x Long. However, MicroSectors FANG Index is 1.73 times less risky than 2x Long. It trades about -0.11 of its potential returns per unit of risk. 2x Long VIX is currently generating about -0.07 per unit of risk. If you would invest 44,888 in MicroSectors FANG Index on September 3, 2024 and sell it today you would lose (43,227) from holding MicroSectors FANG Index or give up 96.3% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
MicroSectors FANG Index vs. 2x Long VIX
Performance |
| Timeline |
| MicroSectors FANG Index |
| 2x Long VIX |
MicroSectors FANG and 2x Long Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MicroSectors FANG and 2x Long
The main advantage of trading using opposite MicroSectors FANG and 2x Long positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectors FANG position performs unexpectedly, 2x Long 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 2x Long will offset losses from the drop in 2x Long's long position.| MicroSectors FANG vs. MicroSectors FANG Index | MicroSectors FANG vs. Direxion Daily Semiconductor | MicroSectors FANG vs. Direxion Daily Technology | MicroSectors FANG vs. Direxion Daily SP |
| 2x Long vs. 1x Short VIX | 2x Long vs. ProShares UltraShort Bloomberg | 2x Long vs. MicroSectors FANG Index | 2x Long vs. AXS TSLA Bear |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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