Correlation Between Nasdaq 100 and Banking Fund
Can any of the company-specific risk be diversified away by investing in both Nasdaq 100 and Banking 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 Nasdaq 100 and Banking Fund 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 Banking Fund Class, you can compare the effects of market volatilities on Nasdaq 100 and Banking 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 Nasdaq 100 with a short position of Banking Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq 100 and Banking Fund.
Diversification Opportunities for Nasdaq 100 and Banking Fund
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Nasdaq and Banking is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 2x Strategy and Banking Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banking Fund Class and 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 Nasdaq 100 2x Strategy are associated (or correlated) with Banking Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banking Fund Class has no effect on the direction of Nasdaq 100 i.e., Nasdaq 100 and Banking Fund go up and down completely randomly.
Pair Corralation between Nasdaq 100 and Banking Fund
Assuming the 90 days horizon Nasdaq 100 2x Strategy is expected to generate 1.5 times more return on investment than Banking Fund. However, Nasdaq 100 is 1.5 times more volatile than Banking Fund Class. It trades about 0.09 of its potential returns per unit of risk. Banking Fund Class is currently generating about 0.1 per unit of risk. If you would invest 24,141 in Nasdaq 100 2x Strategy on September 12, 2024 and sell it today you would earn a total of 19,276 from holding Nasdaq 100 2x Strategy or generate 79.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Nasdaq 100 2x Strategy vs. Banking Fund Class
Performance |
| Timeline |
| Nasdaq 100 2x |
| Banking Fund Class |
Nasdaq 100 and Banking Fund Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nasdaq 100 and Banking Fund
The main advantage of trading using opposite Nasdaq 100 and Banking Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq 100 position performs unexpectedly, Banking 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 Banking Fund will offset losses from the drop in Banking Fund's long position.| Nasdaq 100 vs. Ambrus Core Bond | Nasdaq 100 vs. Pace High Yield | Nasdaq 100 vs. Franklin High Yield | Nasdaq 100 vs. The National Tax Free |
| Banking Fund vs. Vanguard Financials Index | Banking Fund vs. Regional Bank Fund | Banking Fund vs. Regional Bank Fund | Banking Fund vs. T Rowe Price |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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