Correlation Between Basic Materials and Nasdaq-100 Fund
Can any of the company-specific risk be diversified away by investing in both Basic Materials and Nasdaq-100 Fund 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 Nasdaq-100 Fund 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 Nasdaq 100 Fund Class, you can compare the effects of market volatilities on Basic Materials and Nasdaq-100 Fund 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 Nasdaq-100 Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and Nasdaq-100 Fund.
Diversification Opportunities for Basic Materials and Nasdaq-100 Fund
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Basic and Nasdaq-100 is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials Fund and Nasdaq 100 Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq 100 Fund 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 Nasdaq-100 Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq 100 Fund has no effect on the direction of Basic Materials i.e., Basic Materials and Nasdaq-100 Fund go up and down completely randomly.
Pair Corralation between Basic Materials and Nasdaq-100 Fund
Assuming the 90 days horizon Basic Materials Fund is expected to under-perform the Nasdaq-100 Fund. But the mutual fund apears to be less risky and, when comparing its historical volatility, Basic Materials Fund is 1.3 times less risky than Nasdaq-100 Fund. The mutual fund trades about -0.06 of its potential returns per unit of risk. The Nasdaq 100 Fund Class is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 7,472 in Nasdaq 100 Fund Class on August 24, 2024 and sell it today you would earn a total of 220.00 from holding Nasdaq 100 Fund Class or generate 2.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Basic Materials Fund vs. Nasdaq 100 Fund Class
Performance |
| Timeline |
| Basic Materials |
| Nasdaq 100 Fund |
Basic Materials and Nasdaq-100 Fund Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Basic Materials and Nasdaq-100 Fund
The main advantage of trading using opposite Basic Materials and Nasdaq-100 Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials position performs unexpectedly, Nasdaq-100 Fund 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 Nasdaq-100 Fund will offset losses from the drop in Nasdaq-100 Fund'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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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