Correlation Between MicroSectors FANG and SP Funds

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

Diversification Opportunities for MicroSectors FANG and SP Funds

-0.75

Correlation Coefficient

MicroSectors FANG  SP Funds

Pay attention - limited upside

The 3 months correlation between MicroSectors and SPSK is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and SP Funds Dow in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SP Funds Dow 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 SP Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SP Funds Dow has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and SP Funds go up and down completely randomly.

Pair Corralation between MicroSectors FANG and SP Funds

Given the investment horizon of 90 days MicroSectors FANG Index is expected to under-perform the SP Funds. In addition to that, MicroSectors FANG is 11.11 times more volatile than SP Funds Dow. It trades about -0.12 of its total potential returns per unit of risk. SP Funds Dow is currently generating about 0.1 per unit of volatility. If you would invest  1,762  in SP Funds Dow on December 30, 2024 and sell it today you would earn a total of  38.00  from holding SP Funds Dow or generate 2.16% 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.  SP Funds Dow

MicroSectors FANG Index

Risk-Adjusted Performance

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 very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the ETF investors.

SP Funds Dow

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SP Funds Dow are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, SP Funds is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with MicroSectors FANG and SP Funds

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

The idea behind MicroSectors FANG Index and SP Funds Dow 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .