Correlation Between Nasdaq-100(r) and Dow 2x

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Can any of the company-specific risk be diversified away by investing in both Nasdaq-100(r) and Dow 2x 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 Dow 2x 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 Dow 2x Strategy, you can compare the effects of market volatilities on Nasdaq-100(r) and Dow 2x 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 Dow 2x. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq-100(r) and Dow 2x.

Diversification Opportunities for Nasdaq-100(r) and Dow 2x

0.92
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Nasdaq-100(r) and Dow is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 2x Strategy and Dow 2x Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow 2x Strategy 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 Dow 2x. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow 2x Strategy has no effect on the direction of Nasdaq-100(r) i.e., Nasdaq-100(r) and Dow 2x go up and down completely randomly.

Pair Corralation between Nasdaq-100(r) and Dow 2x

Assuming the 90 days horizon Nasdaq 100 2x Strategy is expected to generate 1.6 times more return on investment than Dow 2x. However, Nasdaq-100(r) is 1.6 times more volatile than Dow 2x Strategy. It trades about 0.11 of its potential returns per unit of risk. Dow 2x Strategy is currently generating about 0.08 per unit of risk. If you would invest  14,200  in Nasdaq 100 2x Strategy on September 10, 2024 and sell it today you would earn a total of  30,272  from holding Nasdaq 100 2x Strategy or generate 213.18% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Nasdaq 100 2x Strategy  vs.  Dow 2x Strategy

 Performance 
       Timeline  
Nasdaq 100 2x 

Risk-Adjusted Performance

17 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq 100 2x Strategy are ranked lower than 17 (%) 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.
Dow 2x Strategy 

Risk-Adjusted Performance

14 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Dow 2x Strategy are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Dow 2x showed solid returns over the last few months and may actually be approaching a breakup point.

Nasdaq-100(r) and Dow 2x Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Nasdaq-100(r) and Dow 2x

The main advantage of trading using opposite Nasdaq-100(r) and Dow 2x positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq-100(r) position performs unexpectedly, Dow 2x 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 Dow 2x will offset losses from the drop in Dow 2x's long position.
The idea behind Nasdaq 100 2x Strategy and Dow 2x 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.

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