Correlation Between Inverse Nasdaq-100 and Basic Materials
Can any of the company-specific risk be diversified away by investing in both Inverse Nasdaq-100 and Basic Materials 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 Basic Materials 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 Basic Materials Fund, you can compare the effects of market volatilities on Inverse Nasdaq-100 and Basic Materials 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 Basic Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inverse Nasdaq-100 and Basic Materials.
Diversification Opportunities for Inverse Nasdaq-100 and Basic Materials
-0.75 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Inverse and Basic is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Inverse Nasdaq 100 Strategy and Basic Materials Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Basic Materials 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 Basic Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Basic Materials has no effect on the direction of Inverse Nasdaq-100 i.e., Inverse Nasdaq-100 and Basic Materials go up and down completely randomly.
Pair Corralation between Inverse Nasdaq-100 and Basic Materials
Assuming the 90 days horizon Inverse Nasdaq 100 Strategy is expected to under-perform the Basic Materials. In addition to that, Inverse Nasdaq-100 is 1.28 times more volatile than Basic Materials Fund. It trades about -0.07 of its total potential returns per unit of risk. Basic Materials Fund is currently generating about 0.01 per unit of volatility. If you would invest 8,291 in Basic Materials Fund on August 28, 2024 and sell it today you would earn a total of 9.00 from holding Basic Materials Fund or generate 0.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Inverse Nasdaq 100 Strategy vs. Basic Materials Fund
Performance |
| Timeline |
| Inverse Nasdaq 100 |
| Basic Materials |
Inverse Nasdaq-100 and Basic Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Inverse Nasdaq-100 and Basic Materials
The main advantage of trading using opposite Inverse Nasdaq-100 and Basic Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Inverse Nasdaq-100 position performs unexpectedly, Basic Materials 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 Basic Materials will offset losses from the drop in Basic Materials' long position.| Inverse Nasdaq-100 vs. Georgia Tax Free Bond | Inverse Nasdaq-100 vs. Morningstar Defensive Bond | Inverse Nasdaq-100 vs. Artisan High Income | Inverse Nasdaq-100 vs. T Rowe Price |
| Basic Materials vs. Basic Materials Fund | Basic Materials vs. Basic Materials Fund | Basic Materials vs. Basic Materials Fund | Basic Materials vs. Energy Services Fund |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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