Correlation Between MicroSectors FANG and SPDR Bloomberg

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

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

Diversification Opportunities for MicroSectors FANG and SPDR Bloomberg

-0.71

Correlation Coefficient

MicroSectors FANG  SPDR Bloomberg

Pay attention - limited upside

The 3 months correlation between MicroSectors and SPDR is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG ETN and SPDR Bloomberg International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Bloomberg Inter and MicroSectors FANG 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 FANG ETN are associated (or correlated) with SPDR Bloomberg. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Bloomberg Inter has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and SPDR Bloomberg go up and down completely randomly.

Pair Corralation between MicroSectors FANG and SPDR Bloomberg

Given the investment horizon of 90 days MicroSectors FANG ETN is expected to generate 3.43 times more return on investment than SPDR Bloomberg. However, MicroSectors FANG is 3.43 times more volatile than SPDR Bloomberg International. It trades about 0.12 of its potential returns per unit of risk. SPDR Bloomberg International is currently generating about -0.09 per unit of risk. If you would invest  4,792  in MicroSectors FANG ETN on August 30, 2024 and sell it today you would earn a total of  529.00  from holding MicroSectors FANG ETN or generate 11.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

MicroSectors FANG ETN  vs.  SPDR Bloomberg International

MicroSectors FANG ETN

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors FANG ETN are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, MicroSectors FANG may actually be approaching a critical reversion point that can send shares even higher in December 2024.

SPDR Bloomberg Inter

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR Bloomberg International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, SPDR Bloomberg is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with MicroSectors FANG and SPDR Bloomberg

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

The idea behind MicroSectors FANG ETN and SPDR Bloomberg International 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.

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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.