Correlation Between MicroSectors FANG and VanEck Retail

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

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

Diversification Opportunities for MicroSectors FANG and VanEck Retail

-0.76

Correlation Coefficient

MicroSectors FANG  VanEck Retail

Pay attention - limited upside

The 3 months correlation between MicroSectors and VanEck is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and VanEck Retail ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Retail ETF and MicroSectors FANG 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 FANG Index are associated (or correlated) with VanEck Retail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Retail ETF has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and VanEck Retail go up and down completely randomly.

Pair Corralation between MicroSectors FANG and VanEck Retail

Given the investment horizon of 90 days MicroSectors FANG Index is expected to generate 5.68 times more return on investment than VanEck Retail. However, MicroSectors FANG is 5.68 times more volatile than VanEck Retail ETF. It trades about 0.12 of its potential returns per unit of risk. VanEck Retail ETF is currently generating about 0.0 per unit of risk. If you would invest  1,316  in MicroSectors FANG Index on December 30, 2024 and sell it today you would earn a total of  491.00  from holding MicroSectors FANG Index or generate 37.31% return on investment over 90 days.

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

MicroSectors FANG Index  vs.  VanEck Retail ETF

MicroSectors FANG Index

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors FANG Index are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, MicroSectors FANG exhibited solid returns over the last few months and may actually be approaching a breakup point.

VanEck Retail ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days VanEck Retail ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, VanEck Retail is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with MicroSectors FANG and VanEck Retail

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

The idea behind MicroSectors FANG Index and VanEck Retail ETF 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.