Correlation Between Nasdaq-100(r) and Sp Midcap

Can any of the company-specific risk be diversified away by investing in both Nasdaq-100(r) and Sp Midcap 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 Sp Midcap 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 Sp Midcap 400, you can compare the effects of market volatilities on Nasdaq-100(r) and Sp Midcap 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 Sp Midcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq-100(r) and Sp Midcap.

Diversification Opportunities for Nasdaq-100(r) and Sp Midcap

0.89

Correlation Coefficient

Nasdaq-100(r)  Sp Midcap

Very poor diversification

The 3 months correlation between Nasdaq-100(r) and RYBHX is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 2x Strategy and Sp Midcap 400 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sp Midcap 400 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 Sp Midcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sp Midcap 400 has no effect on the direction of Nasdaq-100(r) i.e., Nasdaq-100(r) and Sp Midcap go up and down completely randomly.

Pair Corralation between Nasdaq-100(r) and Sp Midcap

Assuming the 90 days horizon Nasdaq-100(r) is expected to generate 1.19 times less return on investment than Sp Midcap. In addition to that, Nasdaq-100(r) is 1.63 times more volatile than Sp Midcap 400. It trades about 0.2 of its total potential returns per unit of risk. Sp Midcap 400 is currently generating about 0.39 per unit of volatility. If you would invest  5,593  in Sp Midcap 400 on September 2, 2024 and sell it today you would earn a total of  584.00  from holding Sp Midcap 400 or generate 10.44% return on investment over 90 days.

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

Nasdaq 100 2x Strategy  vs.  Sp Midcap 400

Nasdaq 100 2x

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq 100 2x Strategy are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Nasdaq-100(r) showed solid returns over the last few months and may actually be approaching a breakup point.

Sp Midcap 400

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sp Midcap 400 are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical indicators, Sp Midcap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Nasdaq-100(r) and Sp Midcap

The main advantage of trading using opposite Nasdaq-100(r) and Sp Midcap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq-100(r) position performs unexpectedly, Sp Midcap 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 Sp Midcap will offset losses from the drop in Sp Midcap's long position.

The idea behind Nasdaq 100 2x Strategy and Sp Midcap 400 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.