Correlation Between MicroSectors Solactive and REX AI

Can any of the company-specific risk be diversified away by investing in both MicroSectors Solactive and REX AI 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 REX AI 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 REX AI Equity, you can compare the effects of market volatilities on MicroSectors Solactive and REX AI 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 REX AI. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors Solactive and REX AI.

Diversification Opportunities for MicroSectors Solactive and REX AI

0.9

Correlation Coefficient

MicroSectors Solactive  REX AI

Almost no diversification

The 3 months correlation between MicroSectors and REX is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors Solactive FANG and REX AI Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on REX AI Equity 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 REX AI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of REX AI Equity has no effect on the direction of MicroSectors Solactive i.e., MicroSectors Solactive and REX AI go up and down completely randomly.

Pair Corralation between MicroSectors Solactive and REX AI

Given the investment horizon of 90 days MicroSectors Solactive FANG is expected to generate 4.41 times more return on investment than REX AI. However, MicroSectors Solactive is 4.41 times more volatile than REX AI Equity. It trades about 0.1 of its potential returns per unit of risk. REX AI Equity is currently generating about 0.15 per unit of risk. If you would invest  13,775  in MicroSectors Solactive FANG on September 22, 2024 and sell it today you would earn a total of  3,249  from holding MicroSectors Solactive FANG or generate 23.59% return on investment over 90 days.

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

MicroSectors Solactive FANG  vs.  REX AI Equity

MicroSectors Solactive

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors Solactive FANG are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating essential indicators, MicroSectors Solactive showed solid returns over the last few months and may actually be approaching a breakup point.

REX AI Equity

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in REX AI Equity are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, REX AI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with MicroSectors Solactive and REX AI

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

The idea behind MicroSectors Solactive FANG and REX AI Equity 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.

Check out your portfolio center.

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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.