Correlation Between FTM and NAS

Can any of the company-specific risk be diversified away by investing in both FTM and NAS 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 FTM and NAS into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between FTM and NAS, you can compare the effects of market volatilities on FTM and NAS 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 FTM with a short position of NAS. Check out your portfolio center. Please also check ongoing floating volatility patterns of FTM and NAS.

Diversification Opportunities for FTM and NAS

-0.06

Correlation Coefficient

FTM  NAS

Good diversification

The 3 months correlation between FTM and NAS is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding FTM and NAS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NAS and FTM 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 FTM are associated (or correlated) with NAS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NAS has no effect on the direction of FTM i.e., FTM and NAS go up and down completely randomly.

Pair Corralation between FTM and NAS

Assuming the 90 days trading horizon FTM is expected to generate 115.77 times less return on investment than NAS. But when comparing it to its historical volatility, FTM is 12.41 times less risky than NAS. It trades about 0.01 of its potential returns per unit of risk. NAS is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  0.01  in NAS on December 29, 2024 and sell it today you would earn a total of  0.19  from holding NAS or generate 2302.38% return on investment over 90 days.

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

FTM  vs.  NAS

FTM

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FTM are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady primary indicators, FTM may actually be approaching a critical reversion point that can send shares even higher in April 2025.

NAS

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NAS are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, NAS exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FTM and NAS

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

The idea behind FTM and NAS 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.