Correlation Between MicroSectors FANG and TCW ETF

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

Diversification Opportunities for MicroSectors FANG and TCW ETF

-0.35

Correlation Coefficient

MicroSectors FANG  TCW ETF

Very good diversification

The 3 months correlation between MicroSectors and TCW is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and TCW ETF Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TCW ETF Trust 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 TCW ETF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TCW ETF Trust has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and TCW ETF go up and down completely randomly.

Pair Corralation between MicroSectors FANG and TCW ETF

Given the investment horizon of 90 days MicroSectors FANG Index is expected to generate 3.03 times more return on investment than TCW ETF. However, MicroSectors FANG is 3.03 times more volatile than TCW ETF Trust. It trades about 0.05 of its potential returns per unit of risk. TCW ETF Trust is currently generating about -0.23 per unit of risk. If you would invest  9,207  in MicroSectors FANG Index on October 10, 2024 and sell it today you would earn a total of  191.00  from holding MicroSectors FANG Index or generate 2.07% return on investment over 90 days.

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

MicroSectors FANG Index  vs.  TCW ETF Trust

MicroSectors FANG Index

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MicroSectors FANG Index are ranked lower than 10 (%) 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.

TCW ETF Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TCW ETF Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, TCW ETF is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with MicroSectors FANG and TCW ETF

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

The idea behind MicroSectors FANG Index and TCW ETF Trust 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.