Correlation Between Inverse Mid-cap and Inverse Nasdaq-100
Can any of the company-specific risk be diversified away by investing in both Inverse Mid-cap and Inverse Nasdaq-100 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 Inverse Mid-cap and Inverse Nasdaq-100 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Inverse Mid Cap Strategy and Inverse Nasdaq 100 Strategy, you can compare the effects of market volatilities on Inverse Mid-cap and Inverse Nasdaq-100 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 Inverse Mid-cap with a short position of Inverse Nasdaq-100. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inverse Mid-cap and Inverse Nasdaq-100.
Diversification Opportunities for Inverse Mid-cap and Inverse Nasdaq-100
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Inverse and Inverse is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Inverse Mid Cap Strategy and Inverse Nasdaq 100 Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Nasdaq 100 and Inverse Mid-cap 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 Inverse Mid Cap Strategy are associated (or correlated) with Inverse Nasdaq-100. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Nasdaq 100 has no effect on the direction of Inverse Mid-cap i.e., Inverse Mid-cap and Inverse Nasdaq-100 go up and down completely randomly.
Pair Corralation between Inverse Mid-cap and Inverse Nasdaq-100
Assuming the 90 days horizon Inverse Mid Cap Strategy is expected to generate 0.95 times more return on investment than Inverse Nasdaq-100. However, Inverse Mid Cap Strategy is 1.05 times less risky than Inverse Nasdaq-100. It trades about -0.03 of its potential returns per unit of risk. Inverse Nasdaq 100 Strategy is currently generating about -0.08 per unit of risk. If you would invest 5,589 in Inverse Mid Cap Strategy on August 30, 2024 and sell it today you would lose (1,112) from holding Inverse Mid Cap Strategy or give up 19.9% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Inverse Mid Cap Strategy vs. Inverse Nasdaq 100 Strategy
Performance |
| Timeline |
| Inverse Mid Cap |
| Inverse Nasdaq 100 |
Inverse Mid-cap and Inverse Nasdaq-100 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Inverse Mid-cap and Inverse Nasdaq-100
The main advantage of trading using opposite Inverse Mid-cap and Inverse Nasdaq-100 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Inverse Mid-cap position performs unexpectedly, Inverse Nasdaq-100 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 Inverse Nasdaq-100 will offset losses from the drop in Inverse Nasdaq-100's long position.| Inverse Mid-cap vs. Siit High Yield | Inverse Mid-cap vs. Pace High Yield | Inverse Mid-cap vs. Metropolitan West High | Inverse Mid-cap vs. Lgm Risk Managed |
| Inverse Nasdaq-100 vs. T Rowe Price | Inverse Nasdaq-100 vs. Ab High Income | Inverse Nasdaq-100 vs. Multimanager Lifestyle Aggressive | Inverse Nasdaq-100 vs. California High Yield Municipal |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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