Correlation Between MicroSectors FANG and 2x Long

Can any of the company-specific risk be diversified away by investing in both MicroSectors FANG and 2x Long 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 2x Long 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 2x Long VIX, you can compare the effects of market volatilities on MicroSectors FANG and 2x Long 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 2x Long. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors FANG and 2x Long.

Diversification Opportunities for MicroSectors FANG and 2x Long

0.85

Correlation Coefficient

MicroSectors FANG  2x Long

Very poor diversification

The 3 months correlation between MicroSectors and UVIX is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and 2x Long VIX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 2x Long VIX 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 2x Long. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 2x Long VIX has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and 2x Long go up and down completely randomly.

Pair Corralation between MicroSectors FANG and 2x Long

Given the investment horizon of 90 days MicroSectors FANG Index is expected to under-perform the 2x Long. But the etf apears to be less risky and, when comparing its historical volatility, MicroSectors FANG Index is 2.45 times less risky than 2x Long. The etf trades about -0.04 of its potential returns per unit of risk. The 2x Long VIX is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  306.00  in 2x Long VIX on October 7, 2024 and sell it today you would earn a total of  12.00  from holding 2x Long VIX or generate 3.92% return on investment over 90 days.

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

MicroSectors FANG Index  vs.  2x Long VIX

MicroSectors FANG Index

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MicroSectors FANG Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Etf's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the fund shareholders.

2x Long VIX

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days 2x Long VIX has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Etf's forward indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the ETF investors.

Pair Trading with MicroSectors FANG and 2x Long

The main advantage of trading using opposite MicroSectors FANG and 2x Long positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectors FANG position performs unexpectedly, 2x Long 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 2x Long will offset losses from the drop in 2x Long's long position.

The idea behind MicroSectors FANG Index and 2x Long VIX 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.