Correlation Between Basic Materials and Inverse Nasdaq-100
Can any of the company-specific risk be diversified away by investing in both Basic Materials 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 Basic Materials 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 Basic Materials Fund and Inverse Nasdaq 100 Strategy, you can compare the effects of market volatilities on Basic Materials 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 Basic Materials with a short position of Inverse Nasdaq-100. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and Inverse Nasdaq-100.
Diversification Opportunities for Basic Materials and Inverse Nasdaq-100
-0.74 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Basic and INVERSE is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials Fund 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 Basic Materials 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 Basic Materials Fund 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 Basic Materials i.e., Basic Materials and Inverse Nasdaq-100 go up and down completely randomly.
Pair Corralation between Basic Materials and Inverse Nasdaq-100
Assuming the 90 days horizon Basic Materials Fund is expected to generate 0.84 times more return on investment than Inverse Nasdaq-100. However, Basic Materials Fund is 1.2 times less risky than Inverse Nasdaq-100. It trades about 0.05 of its potential returns per unit of risk. Inverse Nasdaq 100 Strategy is currently generating about -0.06 per unit of risk. If you would invest 6,003 in Basic Materials Fund on August 27, 2024 and sell it today you would earn a total of 795.00 from holding Basic Materials Fund or generate 13.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Basic Materials Fund vs. Inverse Nasdaq 100 Strategy
Performance |
| Timeline |
| Basic Materials |
| Inverse Nasdaq 100 |
Basic Materials and Inverse Nasdaq-100 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Basic Materials and Inverse Nasdaq-100
The main advantage of trading using opposite Basic Materials and Inverse Nasdaq-100 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials 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.| Basic Materials vs. Basic Materials Fund | Basic Materials vs. Energy Services Fund | Basic Materials vs. Energy Fund Class | Basic Materials vs. Basic Materials Fund |
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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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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