Correlation Between Inverse Nasdaq-100 and Government Long
Can any of the company-specific risk be diversified away by investing in both Inverse Nasdaq-100 and Government Long 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 Nasdaq-100 and Government Long into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Inverse Nasdaq 100 Strategy and Government Long Bond, you can compare the effects of market volatilities on Inverse Nasdaq-100 and Government Long 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 Nasdaq-100 with a short position of Government Long. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inverse Nasdaq-100 and Government Long.
Diversification Opportunities for Inverse Nasdaq-100 and Government Long
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Inverse and Government is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Inverse Nasdaq 100 Strategy and Government Long Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Government Long Bond and Inverse Nasdaq-100 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 Nasdaq 100 Strategy are associated (or correlated) with Government Long. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Government Long Bond has no effect on the direction of Inverse Nasdaq-100 i.e., Inverse Nasdaq-100 and Government Long go up and down completely randomly.
Pair Corralation between Inverse Nasdaq-100 and Government Long
Assuming the 90 days horizon Inverse Nasdaq 100 Strategy is expected to under-perform the Government Long. But the mutual fund apears to be less risky and, when comparing its historical volatility, Inverse Nasdaq 100 Strategy is 1.25 times less risky than Government Long. The mutual fund trades about -0.05 of its potential returns per unit of risk. The Government Long Bond is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 2,208 in Government Long Bond on August 31, 2024 and sell it today you would earn a total of 26.00 from holding Government Long Bond or generate 1.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Inverse Nasdaq 100 Strategy vs. Government Long Bond
Performance |
| Timeline |
| Inverse Nasdaq 100 |
| Government Long Bond |
Inverse Nasdaq-100 and Government Long Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Inverse Nasdaq-100 and Government Long
The main advantage of trading using opposite Inverse Nasdaq-100 and Government Long positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Inverse Nasdaq-100 position performs unexpectedly, Government Long 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 Government Long will offset losses from the drop in Government Long's long position.| Inverse Nasdaq-100 vs. Mfs Technology Fund | Inverse Nasdaq-100 vs. Science Technology Fund | Inverse Nasdaq-100 vs. Columbia Global Technology | Inverse Nasdaq-100 vs. Biotechnology Fund Class |
| Government Long vs. Kinetics Small Cap | Government Long vs. Champlain Small | Government Long vs. Jpmorgan Small Cap | Government Long vs. Touchstone Small Cap |
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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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