Correlation Between Government Long and Inverse Nasdaq-100
Can any of the company-specific risk be diversified away by investing in both Government Long 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 Government Long 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 Government Long Bond and Inverse Nasdaq 100 Strategy, you can compare the effects of market volatilities on Government Long 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 Government Long with a short position of Inverse Nasdaq-100. Check out your portfolio center. Please also check ongoing floating volatility patterns of Government Long and Inverse Nasdaq-100.
Diversification Opportunities for Government Long and Inverse Nasdaq-100
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Government and Inverse is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Government Long Bond 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 Government Long 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 Government Long Bond 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 Government Long i.e., Government Long and Inverse Nasdaq-100 go up and down completely randomly.
Pair Corralation between Government Long and Inverse Nasdaq-100
Assuming the 90 days horizon Government Long Bond is expected to generate 0.88 times more return on investment than Inverse Nasdaq-100. However, Government Long Bond is 1.13 times less risky than Inverse Nasdaq-100. It trades about 0.0 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 2,244 in Government Long Bond on August 27, 2024 and sell it today you would lose (60.00) from holding Government Long Bond or give up 2.67% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Government Long Bond vs. Inverse Nasdaq 100 Strategy
Performance |
| Timeline |
| Government Long Bond |
| Inverse Nasdaq 100 |
Government Long and Inverse Nasdaq-100 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Government Long and Inverse Nasdaq-100
The main advantage of trading using opposite Government Long and Inverse Nasdaq-100 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Government Long 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.| Government Long vs. Basic Materials Fund | Government Long vs. Basic Materials Fund | Government Long vs. Banking Fund Class | Government Long vs. Basic Materials Fund |
| Inverse Nasdaq-100 vs. Basic Materials Fund | Inverse Nasdaq-100 vs. Basic Materials Fund | Inverse Nasdaq-100 vs. Banking Fund Class | Inverse Nasdaq-100 vs. Basic Materials 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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