Correlation Between Nasdaq-100(r) and World Energy
Can any of the company-specific risk be diversified away by investing in both Nasdaq-100(r) and World Energy 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 Nasdaq-100(r) and World Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nasdaq 100 2x Strategy and World Energy Fund, you can compare the effects of market volatilities on Nasdaq-100(r) and World Energy 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 Nasdaq-100(r) with a short position of World Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq-100(r) and World Energy.
Diversification Opportunities for Nasdaq-100(r) and World Energy
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Nasdaq-100(r) and World is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 2x Strategy and World Energy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on World Energy and Nasdaq-100(r) 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 Nasdaq 100 2x Strategy are associated (or correlated) with World Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of World Energy has no effect on the direction of Nasdaq-100(r) i.e., Nasdaq-100(r) and World Energy go up and down completely randomly.
Pair Corralation between Nasdaq-100(r) and World Energy
Assuming the 90 days horizon Nasdaq 100 2x Strategy is expected to generate 1.82 times more return on investment than World Energy. However, Nasdaq-100(r) is 1.82 times more volatile than World Energy Fund. It trades about 0.09 of its potential returns per unit of risk. World Energy Fund is currently generating about 0.03 per unit of risk. If you would invest 15,467 in Nasdaq 100 2x Strategy on October 11, 2024 and sell it today you would earn a total of 23,794 from holding Nasdaq 100 2x Strategy or generate 153.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Nasdaq 100 2x Strategy vs. World Energy Fund
Performance |
| Timeline |
| Nasdaq 100 2x |
| World Energy |
Nasdaq-100(r) and World Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nasdaq-100(r) and World Energy
The main advantage of trading using opposite Nasdaq-100(r) and World Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq-100(r) position performs unexpectedly, World Energy 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 World Energy will offset losses from the drop in World Energy's long position.| Nasdaq-100(r) vs. Eic Value Fund | Nasdaq-100(r) vs. Tax Managed Large Cap | Nasdaq-100(r) vs. T Rowe Price | Nasdaq-100(r) vs. Us Vector Equity |
| World Energy vs. Black Oak Emerging | World Energy vs. Nasdaq 100 2x Strategy | World Energy vs. Balanced Strategy Fund | World Energy vs. Mid Cap 15x Strategy |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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