Correlation Between MicroSectors Solactive and MicroSectors Travel

Can any of the company-specific risk be diversified away by investing in both MicroSectors Solactive and MicroSectors Travel 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 MicroSectors Solactive and MicroSectors Travel into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between MicroSectors Solactive FANG and MicroSectors Travel 3X, you can compare the effects of market volatilities on MicroSectors Solactive and MicroSectors Travel 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 MicroSectors Solactive with a short position of MicroSectors Travel. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors Solactive and MicroSectors Travel.

Diversification Opportunities for MicroSectors Solactive and MicroSectors Travel

0.44

Correlation Coefficient

MicroSectors Solactive  MicroSectors Travel

Very weak diversification

The 3 months correlation between MicroSectors and MicroSectors is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors Solactive FANG and MicroSectors Travel 3X in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MicroSectors Travel and MicroSectors Solactive 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 MicroSectors Solactive FANG are associated (or correlated) with MicroSectors Travel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MicroSectors Travel has no effect on the direction of MicroSectors Solactive i.e., MicroSectors Solactive and MicroSectors Travel go up and down completely randomly.

Pair Corralation between MicroSectors Solactive and MicroSectors Travel

Given the investment horizon of 90 days MicroSectors Solactive is expected to generate 1.4 times less return on investment than MicroSectors Travel. In addition to that, MicroSectors Solactive is 1.59 times more volatile than MicroSectors Travel 3X. It trades about 0.02 of its total potential returns per unit of risk. MicroSectors Travel 3X is currently generating about 0.04 per unit of volatility. If you would invest  1,336  in MicroSectors Travel 3X on December 1, 2024 and sell it today you would earn a total of  74.00  from holding MicroSectors Travel 3X or generate 5.54% return on investment over 90 days.

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

MicroSectors Solactive FANG  vs.  MicroSectors Travel 3X

MicroSectors Solactive

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors Solactive FANG are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, MicroSectors Solactive may actually be approaching a critical reversion point that can send shares even higher in April 2025.

MicroSectors Travel

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors Travel 3X are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, MicroSectors Travel may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with MicroSectors Solactive and MicroSectors Travel

The main advantage of trading using opposite MicroSectors Solactive and MicroSectors Travel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectors Solactive position performs unexpectedly, MicroSectors Travel 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 MicroSectors Travel will offset losses from the drop in MicroSectors Travel's long position.

The idea behind MicroSectors Solactive FANG and MicroSectors Travel 3X 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.