Correlation Between MicroSectors Solactive and MicroSectors Travel

Can any of the company-specific risk be diversified away by investing in both MicroSectors Solactive and MicroSectors Travel 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 MicroSectors Solactive and MicroSectors Travel into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between MicroSectors Solactive FANG and MicroSectors Travel 3X, you can compare the effects of market volatilities on MicroSectors Solactive and MicroSectors Travel 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 MicroSectors Solactive with a short position of MicroSectors Travel. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors Solactive and MicroSectors Travel.

Diversification Opportunities for MicroSectors Solactive and MicroSectors Travel

0.93

Correlation Coefficient

MicroSectors Solactive  MicroSectors Travel

Almost no diversification

The 3 months correlation between MicroSectors and MicroSectors is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors Solactive FANG and MicroSectors Travel 3X in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MicroSectors Travel and MicroSectors Solactive 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 MicroSectors Solactive FANG are associated (or correlated) with MicroSectors Travel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MicroSectors Travel has no effect on the direction of MicroSectors Solactive i.e., MicroSectors Solactive and MicroSectors Travel go up and down completely randomly.

Pair Corralation between MicroSectors Solactive and MicroSectors Travel

Given the investment horizon of 90 days MicroSectors Solactive FANG is expected to generate 1.16 times more return on investment than MicroSectors Travel. However, MicroSectors Solactive is 1.16 times more volatile than MicroSectors Travel 3X. It trades about -0.2 of its potential returns per unit of risk. MicroSectors Travel 3X is currently generating about -0.29 per unit of risk. If you would invest  2,058  in MicroSectors Solactive FANG on September 14, 2024 and sell it today you would lose (866.00) from holding MicroSectors Solactive FANG or give up 42.08% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

MicroSectors Solactive FANG  vs.  MicroSectors Travel 3X

MicroSectors Solactive

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MicroSectors Solactive FANG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Etf's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the ETF investors.

MicroSectors Travel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MicroSectors Travel 3X has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Etf's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the fund shareholders.

Pair Trading with MicroSectors Solactive and MicroSectors Travel

The main advantage of trading using opposite MicroSectors Solactive and MicroSectors Travel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectors Solactive position performs unexpectedly, MicroSectors Travel 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 MicroSectors Travel will offset losses from the drop in MicroSectors Travel's long position.

The idea behind MicroSectors Solactive FANG and MicroSectors Travel 3X pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.