Correlation Between MicroSectors FANG and T Rex

Can any of the company-specific risk be diversified away by investing in both MicroSectors FANG and T Rex 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 T Rex 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 T Rex 2X Long, you can compare the effects of market volatilities on MicroSectors FANG and T Rex 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 T Rex. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors FANG and T Rex.

Diversification Opportunities for MicroSectors FANG and T Rex

0.55

Correlation Coefficient

MicroSectors FANG  T Rex

Very weak diversification

The 3 months correlation between MicroSectors and NVDX is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and T Rex 2X Long in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on T Rex 2X 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 T Rex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of T Rex 2X has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and T Rex go up and down completely randomly.

Pair Corralation between MicroSectors FANG and T Rex

Given the investment horizon of 90 days MicroSectors FANG Index is expected to generate 0.68 times more return on investment than T Rex. However, MicroSectors FANG Index is 1.47 times less risky than T Rex. It trades about -0.09 of its potential returns per unit of risk. T Rex 2X Long is currently generating about -0.08 per unit of risk. If you would invest  60,620  in MicroSectors FANG Index on December 30, 2024 and sell it today you would lose (18,603) from holding MicroSectors FANG Index or give up 30.69% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	88.71%
Values	Daily Returns

MicroSectors FANG Index  vs.  T Rex 2X Long

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 conflicting performance in the last few months, the Etf's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the exchange-traded fund private investors.

T Rex 2X

Risk-Adjusted Performance

Very Weak

Over the last 90 days T Rex 2X Long has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Etf's fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the ETF investors.

Pair Trading with MicroSectors FANG and T Rex

The main advantage of trading using opposite MicroSectors FANG and T Rex positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectors FANG position performs unexpectedly, T Rex 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 T Rex will offset losses from the drop in T Rex's long position.

The idea behind MicroSectors FANG Index and T Rex 2X Long 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.