Correlation Between MicroSectors FANG and ETRACS 2x
Can any of the company-specific risk be diversified away by investing in both MicroSectors FANG and ETRACS 2x 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 ETRACS 2x 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 ETRACS 2x Leveraged, you can compare the effects of market volatilities on MicroSectors FANG and ETRACS 2x 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 ETRACS 2x. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors FANG and ETRACS 2x.
Diversification Opportunities for MicroSectors FANG and ETRACS 2x
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between MicroSectors and ETRACS is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and ETRACS 2x Leveraged in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETRACS 2x Leveraged 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 ETRACS 2x. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETRACS 2x Leveraged has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and ETRACS 2x go up and down completely randomly.
Pair Corralation between MicroSectors FANG and ETRACS 2x
Given the investment horizon of 90 days MicroSectors FANG Index is expected to generate 4.55 times more return on investment than ETRACS 2x. However, MicroSectors FANG is 4.55 times more volatile than ETRACS 2x Leveraged. It trades about 0.08 of its potential returns per unit of risk. ETRACS 2x Leveraged is currently generating about 0.19 per unit of risk. If you would invest 35,100 in MicroSectors FANG Index on September 1, 2024 and sell it today you would earn a total of 15,700 from holding MicroSectors FANG Index or generate 44.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.21% |
| Values | Daily Returns |
MicroSectors FANG Index vs. ETRACS 2x Leveraged
Performance |
| Timeline |
| MicroSectors FANG Index |
| ETRACS 2x Leveraged |
MicroSectors FANG and ETRACS 2x Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MicroSectors FANG and ETRACS 2x
The main advantage of trading using opposite MicroSectors FANG and ETRACS 2x positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectors FANG position performs unexpectedly, ETRACS 2x 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 ETRACS 2x will offset losses from the drop in ETRACS 2x'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 |
| ETRACS 2x vs. Vanguard Minimum Volatility | ETRACS 2x vs. ProShares VIX Mid Term | ETRACS 2x vs. ProShares VIX Short Term | ETRACS 2x vs. ETF Series Solutions |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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