Correlation Between Biotechnology Fund and Inverse Nasdaq-100

Can any of the company-specific risk be diversified away by investing in both Biotechnology Fund 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 Biotechnology Fund 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 Biotechnology Fund Class and Inverse Nasdaq 100 Strategy, you can compare the effects of market volatilities on Biotechnology Fund 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 Biotechnology Fund with a short position of Inverse Nasdaq-100. Check out your portfolio center. Please also check ongoing floating volatility patterns of Biotechnology Fund and Inverse Nasdaq-100.

Diversification Opportunities for Biotechnology Fund and Inverse Nasdaq-100

0.34

Correlation Coefficient

Biotechnology Fund  Inverse Nasdaq-100

Weak diversification

The 3 months correlation between BIOTECHNOLOGY and Inverse is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Biotechnology Fund Class 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 Biotechnology Fund 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 Biotechnology Fund Class 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 Biotechnology Fund i.e., Biotechnology Fund and Inverse Nasdaq-100 go up and down completely randomly.

Pair Corralation between Biotechnology Fund and Inverse Nasdaq-100

Assuming the 90 days horizon Biotechnology Fund Class is expected to generate 1.02 times more return on investment than Inverse Nasdaq-100. However, Biotechnology Fund is 1.02 times more volatile than Inverse Nasdaq 100 Strategy. It trades about -0.04 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  7,121  in Biotechnology Fund Class on August 30, 2024 and sell it today you would lose (210.00) from holding Biotechnology Fund Class or give up 2.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Biotechnology Fund Class  vs.  Inverse Nasdaq 100 Strategy

Biotechnology Fund Class

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Biotechnology Fund Class has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Biotechnology Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Inverse Nasdaq 100

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inverse Nasdaq 100 Strategy has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Inverse Nasdaq-100 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Biotechnology Fund and Inverse Nasdaq-100

The main advantage of trading using opposite Biotechnology Fund and Inverse Nasdaq-100 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Biotechnology Fund 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.

The idea behind Biotechnology Fund Class and Inverse Nasdaq 100 Strategy 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.