Correlation Between Nasdaq-100(r) and Technology Ultrasector

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

Diversification Opportunities for Nasdaq-100(r) and Technology Ultrasector

0.97

Correlation Coefficient

Nasdaq-100(r)  Technology Ultrasector

Almost no diversification

The 3 months correlation between Nasdaq-100(r) and Technology is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 2x Strategy and Technology Ultrasector Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Technology Ultrasector 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 Technology Ultrasector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Technology Ultrasector has no effect on the direction of Nasdaq-100(r) i.e., Nasdaq-100(r) and Technology Ultrasector go up and down completely randomly.

Pair Corralation between Nasdaq-100(r) and Technology Ultrasector

Assuming the 90 days horizon Nasdaq 100 2x Strategy is expected to generate 1.09 times more return on investment than Technology Ultrasector. However, Nasdaq-100(r) is 1.09 times more volatile than Technology Ultrasector Profund. It trades about 0.13 of its potential returns per unit of risk. Technology Ultrasector Profund is currently generating about 0.12 per unit of risk. If you would invest  48,630  in Nasdaq 100 2x Strategy on August 31, 2024 and sell it today you would earn a total of  8,420  from holding Nasdaq 100 2x Strategy or generate 17.31% return on investment over 90 days.

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

Nasdaq 100 2x Strategy  vs.  Technology Ultrasector Profund

Nasdaq 100 2x

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq 100 2x Strategy are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Nasdaq-100(r) showed solid returns over the last few months and may actually be approaching a breakup point.

Technology Ultrasector

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Technology Ultrasector Profund are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Technology Ultrasector showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nasdaq-100(r) and Technology Ultrasector

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

The idea behind Nasdaq 100 2x Strategy and Technology Ultrasector Profund 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.