Correlation Between MicroSectors FANG and MicroSectors FANG

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

Diversification Opportunities for MicroSectors FANG and MicroSectors FANG

0.87

Correlation Coefficient

MicroSectors FANG  MicroSectors FANG

Very poor diversification

The 3 months correlation between MicroSectors and MicroSectors is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and MicroSectors FANG Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MicroSectors FANG 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 MicroSectors FANG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MicroSectors FANG Index has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and MicroSectors FANG go up and down completely randomly.

Pair Corralation between MicroSectors FANG and MicroSectors FANG

Given the investment horizon of 90 days MicroSectors FANG Index is expected to generate 1.32 times more return on investment than MicroSectors FANG. However, MicroSectors FANG is 1.32 times more volatile than MicroSectors FANG Index. It trades about -0.15 of its potential returns per unit of risk. MicroSectors FANG Index is currently generating about -0.23 per unit of risk. If you would invest  60,901  in MicroSectors FANG Index on December 4, 2024 and sell it today you would lose (8,551) from holding MicroSectors FANG Index or give up 14.04% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.24%
Values	Daily Returns

MicroSectors FANG Index  vs.  MicroSectors FANG Index

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 comparatively stable technical and fundamental indicators, MicroSectors FANG is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

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 latest uncertain performance, the Etf's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

Pair Trading with MicroSectors FANG and MicroSectors FANG

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

The idea behind MicroSectors FANG Index and MicroSectors FANG 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.