Correlation Between MicroSectors FANG and VanEck BDC

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

By analyzing existing cross correlation between MicroSectors FANG Index and VanEck BDC Income, you can compare the effects of market volatilities on MicroSectors FANG and VanEck BDC 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 VanEck BDC. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors FANG and VanEck BDC.

Diversification Opportunities for MicroSectors FANG and VanEck BDC

0.77

Correlation Coefficient

MicroSectors FANG  VanEck BDC

Poor diversification

The 3 months correlation between MicroSectors and VanEck is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and VanEck BDC Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck BDC Income 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 Index are associated (or correlated) with VanEck BDC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck BDC Income has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and VanEck BDC go up and down completely randomly.

Pair Corralation between MicroSectors FANG and VanEck BDC

Given the investment horizon of 90 days MicroSectors FANG Index is expected to generate 6.52 times more return on investment than VanEck BDC. However, MicroSectors FANG is 6.52 times more volatile than VanEck BDC Income. It trades about 0.17 of its potential returns per unit of risk. VanEck BDC Income is currently generating about 0.08 per unit of risk. If you would invest  41,264  in MicroSectors FANG Index on September 22, 2024 and sell it today you would earn a total of  20,236  from holding MicroSectors FANG Index or generate 49.04% return on investment over 90 days.

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

MicroSectors FANG Index  vs.  VanEck BDC Income

MicroSectors FANG Index

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors FANG Index are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting technical and fundamental indicators, MicroSectors FANG unveiled solid returns over the last few months and may actually be approaching a breakup point.

VanEck BDC Income

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck BDC Income are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, VanEck BDC 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 VanEck BDC

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

The idea behind MicroSectors FANG Index and VanEck BDC Income 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .