Correlation Between MicroSectors FANG and MicroSectors Travel
Can any of the company-specific risk be diversified away by investing in both MicroSectors FANG and MicroSectors Travel 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 MicroSectors Travel 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 MicroSectors Travel 3X, you can compare the effects of market volatilities on MicroSectors FANG and MicroSectors Travel 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 MicroSectors Travel. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors FANG and MicroSectors Travel.
Diversification Opportunities for MicroSectors FANG and MicroSectors Travel
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between MicroSectors and MicroSectors is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and MicroSectors Travel 3X in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MicroSectors Travel 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 MicroSectors Travel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MicroSectors Travel has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and MicroSectors Travel go up and down completely randomly.
Pair Corralation between MicroSectors FANG and MicroSectors Travel
Given the investment horizon of 90 days MicroSectors FANG Index is expected to generate 1.46 times more return on investment than MicroSectors Travel. However, MicroSectors FANG is 1.46 times more volatile than MicroSectors Travel 3X. It trades about 0.22 of its potential returns per unit of risk. MicroSectors Travel 3X is currently generating about 0.1 per unit of risk. If you would invest 52,737 in MicroSectors FANG Index on September 14, 2024 and sell it today you would earn a total of 9,163 from holding MicroSectors FANG Index or generate 17.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
MicroSectors FANG Index vs. MicroSectors Travel 3X
Performance |
| Timeline |
| MicroSectors FANG Index |
| MicroSectors Travel |
MicroSectors FANG and MicroSectors Travel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MicroSectors FANG and MicroSectors Travel
The main advantage of trading using opposite MicroSectors FANG and MicroSectors Travel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectors FANG position performs unexpectedly, MicroSectors Travel 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 MicroSectors Travel will offset losses from the drop in MicroSectors Travel's long position.| MicroSectors FANG vs. Direxion Daily Semiconductor | MicroSectors FANG vs. MicroSectors Solactive FANG | MicroSectors FANG vs. MicroSectors FANG Index | MicroSectors FANG vs. Direxion Daily Technology |
| MicroSectors Travel vs. MicroSectors Travel 3X | MicroSectors Travel vs. MicroSectors Gold Miners | MicroSectors Travel vs. Direxion Daily Travel | MicroSectors Travel vs. MicroSectors Solactive FANG |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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