Correlation Between MicroSectors FANG and VanEck Indonesia

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

Diversification Opportunities for MicroSectors FANG and VanEck Indonesia

-0.8

Correlation Coefficient

MicroSectors FANG  VanEck Indonesia

Pay attention - limited upside

The 3 months correlation between MicroSectors and VanEck is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and VanEck Indonesia Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Indonesia Index 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 Indonesia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Indonesia Index has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and VanEck Indonesia go up and down completely randomly.

Pair Corralation between MicroSectors FANG and VanEck Indonesia

Given the investment horizon of 90 days MicroSectors FANG Index is expected to generate 1.97 times more return on investment than VanEck Indonesia. However, MicroSectors FANG is 1.97 times more volatile than VanEck Indonesia Index. It trades about 0.23 of its potential returns per unit of risk. VanEck Indonesia Index is currently generating about -0.12 per unit of risk. If you would invest  6,853  in MicroSectors FANG Index on September 12, 2024 and sell it today you would earn a total of  2,786  from holding MicroSectors FANG Index or generate 40.65% return on investment over 90 days.

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

MicroSectors FANG Index  vs.  VanEck Indonesia Index

MicroSectors FANG Index

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors FANG Index are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain technical and fundamental indicators, MicroSectors FANG displayed solid returns over the last few months and may actually be approaching a breakup point.

VanEck Indonesia Index

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VanEck Indonesia Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Etf's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Pair Trading with MicroSectors FANG and VanEck Indonesia

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

The idea behind MicroSectors FANG Index and VanEck Indonesia Index 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.