Correlation Between Freedom Day and MicroSectors FANG
Can any of the company-specific risk be diversified away by investing in both Freedom Day and MicroSectors FANG 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 Freedom Day and MicroSectors FANG into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Freedom Day Dividend and MicroSectors FANG ETN, you can compare the effects of market volatilities on Freedom Day and MicroSectors FANG 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 Freedom Day with a short position of MicroSectors FANG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Freedom Day and MicroSectors FANG.
Diversification Opportunities for Freedom Day and MicroSectors FANG
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Freedom and MicroSectors is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Freedom Day Dividend and MicroSectors FANG ETN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MicroSectors FANG ETN and Freedom Day 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 Freedom Day Dividend are associated (or correlated) with MicroSectors FANG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MicroSectors FANG ETN has no effect on the direction of Freedom Day i.e., Freedom Day and MicroSectors FANG go up and down completely randomly.
Pair Corralation between Freedom Day and MicroSectors FANG
Given the investment horizon of 90 days Freedom Day is expected to generate 1.55 times less return on investment than MicroSectors FANG. But when comparing it to its historical volatility, Freedom Day Dividend is 1.98 times less risky than MicroSectors FANG. It trades about 0.16 of its potential returns per unit of risk. MicroSectors FANG ETN is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 3,329 in MicroSectors FANG ETN on September 1, 2024 and sell it today you would earn a total of 2,049 from holding MicroSectors FANG ETN or generate 61.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Freedom Day Dividend vs. MicroSectors FANG ETN
Performance |
| Timeline |
| Freedom Day Dividend |
| MicroSectors FANG ETN |
Freedom Day and MicroSectors FANG Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Freedom Day and MicroSectors FANG
The main advantage of trading using opposite Freedom Day and MicroSectors FANG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Freedom Day position performs unexpectedly, MicroSectors FANG 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 FANG will offset losses from the drop in MicroSectors FANG's long position.| Freedom Day vs. iShares Core SP | Freedom Day vs. iShares Core MSCI | Freedom Day vs. iShares Broad USD | Freedom Day vs. iShares Core SP |
| 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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