Correlation Between Large Cap and Nasdaq 100

Can any of the company-specific risk be diversified away by investing in both Large Cap and Nasdaq 100 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 Large Cap and Nasdaq 100 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Large Cap Growth Profund and Nasdaq 100 2x Strategy, you can compare the effects of market volatilities on Large Cap and Nasdaq 100 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 Large Cap with a short position of Nasdaq 100. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Cap and Nasdaq 100.

Diversification Opportunities for Large Cap and Nasdaq 100

0.79

Correlation Coefficient

Large Cap  Nasdaq 100

Poor diversification

The 3 months correlation between Large and Nasdaq is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Growth Profund and Nasdaq 100 2x Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq 100 2x and Large Cap 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 Large Cap Growth Profund are associated (or correlated) with Nasdaq 100. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq 100 2x has no effect on the direction of Large Cap i.e., Large Cap and Nasdaq 100 go up and down completely randomly.

Pair Corralation between Large Cap and Nasdaq 100

Assuming the 90 days horizon Large Cap is expected to generate 2.18 times less return on investment than Nasdaq 100. But when comparing it to its historical volatility, Large Cap Growth Profund is 2.32 times less risky than Nasdaq 100. It trades about 0.12 of its potential returns per unit of risk. Nasdaq 100 2x Strategy is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  13,295  in Nasdaq 100 2x Strategy on September 26, 2024 and sell it today you would earn a total of  28,448  from holding Nasdaq 100 2x Strategy or generate 213.98% return on investment over 90 days.

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

Large Cap Growth Profund  vs.  Nasdaq 100 2x Strategy

Large Cap Growth

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap Growth Profund are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Large Cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Nasdaq 100 2x

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq 100 2x Strategy are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Nasdaq 100 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Large Cap and Nasdaq 100

The main advantage of trading using opposite Large Cap and Nasdaq 100 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Large Cap position performs unexpectedly, Nasdaq 100 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 Nasdaq 100 will offset losses from the drop in Nasdaq 100's long position.

The idea behind Large Cap Growth Profund and Nasdaq 100 2x Strategy 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.