Correlation Between MicroSectors FANG and IXSE

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

Diversification Opportunities for MicroSectors FANG and IXSE

0.92

Correlation Coefficient

MicroSectors FANG  IXSE

Almost no diversification

The 3 months correlation between MicroSectors and IXSE is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and IXSE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IXSE 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 IXSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IXSE has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and IXSE go up and down completely randomly.

Pair Corralation between MicroSectors FANG and IXSE

If you would invest  6,860  in MicroSectors FANG Index on September 17, 2024 and sell it today you would earn a total of  3,000  from holding MicroSectors FANG Index or generate 43.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	3.08%
Values	Daily Returns

MicroSectors FANG Index  vs.  IXSE

MicroSectors FANG Index

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors FANG Index are ranked lower than 19 (%) 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.

IXSE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IXSE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, IXSE is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with MicroSectors FANG and IXSE

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

The idea behind MicroSectors FANG Index and IXSE 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.