Correlation Between Nasdaq-100(r) and Industrials Portfolio
Can any of the company-specific risk be diversified away by investing in both Nasdaq-100(r) and Industrials Portfolio 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 Industrials Portfolio 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 Industrials Portfolio Industrials, you can compare the effects of market volatilities on Nasdaq-100(r) and Industrials Portfolio 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 Industrials Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq-100(r) and Industrials Portfolio.
Diversification Opportunities for Nasdaq-100(r) and Industrials Portfolio
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Nasdaq-100(r) and Industrials is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 2x Strategy and Industrials Portfolio Industri in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrials Portfolio 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 Industrials Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrials Portfolio has no effect on the direction of Nasdaq-100(r) i.e., Nasdaq-100(r) and Industrials Portfolio go up and down completely randomly.
Pair Corralation between Nasdaq-100(r) and Industrials Portfolio
Assuming the 90 days horizon Nasdaq 100 2x Strategy is expected to generate 2.02 times more return on investment than Industrials Portfolio. However, Nasdaq-100(r) is 2.02 times more volatile than Industrials Portfolio Industrials. It trades about 0.08 of its potential returns per unit of risk. Industrials Portfolio Industrials is currently generating about 0.11 per unit of risk. If you would invest 31,824 in Nasdaq 100 2x Strategy on August 31, 2024 and sell it today you would earn a total of 25,226 from holding Nasdaq 100 2x Strategy or generate 79.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Nasdaq 100 2x Strategy vs. Industrials Portfolio Industri
Performance |
| Timeline |
| Nasdaq 100 2x |
| Industrials Portfolio |
Nasdaq-100(r) and Industrials Portfolio Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nasdaq-100(r) and Industrials Portfolio
The main advantage of trading using opposite Nasdaq-100(r) and Industrials Portfolio positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq-100(r) position performs unexpectedly, Industrials Portfolio 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 Industrials Portfolio will offset losses from the drop in Industrials Portfolio's long position.| Nasdaq-100(r) vs. Sp 500 2x | Nasdaq-100(r) vs. Inverse Nasdaq 100 2x | Nasdaq-100(r) vs. Inverse Sp 500 | Nasdaq-100(r) vs. Ultra Nasdaq 100 Profunds |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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