Correlation Between Nasdaq-100(r) and Government High

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

Diversification Opportunities for Nasdaq-100(r) and Government High

-0.74

Correlation Coefficient

Nasdaq-100(r)  Government High

Pay attention - limited upside

The 3 months correlation between Nasdaq-100(r) and Government is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 2x Strategy and Government High Quality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Government High Quality 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 Government High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Government High Quality has no effect on the direction of Nasdaq-100(r) i.e., Nasdaq-100(r) and Government High go up and down completely randomly.

Pair Corralation between Nasdaq-100(r) and Government High

Assuming the 90 days horizon Nasdaq 100 2x Strategy is expected to generate 6.02 times more return on investment than Government High. However, Nasdaq-100(r) is 6.02 times more volatile than Government High Quality. It trades about 0.15 of its potential returns per unit of risk. Government High Quality is currently generating about -0.07 per unit of risk. If you would invest  48,645  in Nasdaq 100 2x Strategy on September 3, 2024 and sell it today you would earn a total of  9,416  from holding Nasdaq 100 2x Strategy or generate 19.36% return on investment over 90 days.

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

Nasdaq 100 2x Strategy  vs.  Government High Quality

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 essential indicators, Nasdaq-100(r) showed solid returns over the last few months and may actually be approaching a breakup point.

Government High Quality

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Nasdaq-100(r) and Government High

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

The idea behind Nasdaq 100 2x Strategy and Government High Quality 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.