Correlation Between MicroSectors FANG and Freedom Day
Can any of the company-specific risk be diversified away by investing in both MicroSectors FANG and Freedom Day 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 Freedom Day into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MicroSectors FANG ETN and Freedom Day Dividend, you can compare the effects of market volatilities on MicroSectors FANG and Freedom Day 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 Freedom Day. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors FANG and Freedom Day.
Diversification Opportunities for MicroSectors FANG and Freedom Day
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between MicroSectors and Freedom is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG ETN and Freedom Day Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freedom Day Dividend 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 ETN are associated (or correlated) with Freedom Day. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freedom Day Dividend has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and Freedom Day go up and down completely randomly.
Pair Corralation between MicroSectors FANG and Freedom Day
Given the investment horizon of 90 days MicroSectors FANG ETN is expected to generate 2.03 times more return on investment than Freedom Day. However, MicroSectors FANG is 2.03 times more volatile than Freedom Day Dividend. It trades about 0.11 of its potential returns per unit of risk. Freedom Day Dividend is currently generating about 0.15 per unit of risk. If you would invest 3,570 in MicroSectors FANG ETN on September 2, 2024 and sell it today you would earn a total of 1,808 from holding MicroSectors FANG ETN or generate 50.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
MicroSectors FANG ETN vs. Freedom Day Dividend
Performance |
| Timeline |
| MicroSectors FANG ETN |
| Freedom Day Dividend |
MicroSectors FANG and Freedom Day Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MicroSectors FANG and Freedom Day
The main advantage of trading using opposite MicroSectors FANG and Freedom Day positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectors FANG position performs unexpectedly, Freedom Day 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 Freedom Day will offset losses from the drop in Freedom Day's long position.| MicroSectors FANG vs. Freedom Day Dividend | MicroSectors FANG vs. iShares MSCI China | MicroSectors FANG vs. iShares Dividend and | MicroSectors FANG vs. SmartETFs Dividend Builder |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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