Correlation Between Limited Term and Inverse Nasdaq-100

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

By analyzing existing cross correlation between Limited Term Tax and Inverse Nasdaq 100 Strategy, you can compare the effects of market volatilities on Limited Term and Inverse 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 Limited Term with a short position of Inverse Nasdaq-100. Check out your portfolio center. Please also check ongoing floating volatility patterns of Limited Term and Inverse Nasdaq-100.

Diversification Opportunities for Limited Term and Inverse Nasdaq-100

0.37

Correlation Coefficient

Limited Term  Inverse Nasdaq-100

Weak diversification

The 3 months correlation between LIMITED and Inverse is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Limited Term Tax and Inverse Nasdaq 100 Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Nasdaq 100 and Limited Term 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 Limited Term Tax are associated (or correlated) with Inverse 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 Inverse Nasdaq 100 has no effect on the direction of Limited Term i.e., Limited Term and Inverse Nasdaq-100 go up and down completely randomly.

Pair Corralation between Limited Term and Inverse Nasdaq-100

Assuming the 90 days horizon Limited Term is expected to generate 17.46 times less return on investment than Inverse Nasdaq-100. But when comparing it to its historical volatility, Limited Term Tax is 10.04 times less risky than Inverse Nasdaq-100. It trades about 0.07 of its potential returns per unit of risk. Inverse Nasdaq 100 Strategy is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  13,320  in Inverse Nasdaq 100 Strategy on December 30, 2024 and sell it today you would earn a total of  1,370  from holding Inverse Nasdaq 100 Strategy or generate 10.29% return on investment over 90 days.

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

Limited Term Tax  vs.  Inverse Nasdaq 100 Strategy

Limited Term Tax

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Limited Term Tax are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Limited Term is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Inverse Nasdaq 100

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Inverse Nasdaq 100 Strategy are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Inverse Nasdaq-100 may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Limited Term and Inverse Nasdaq-100

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

The idea behind Limited Term Tax and Inverse Nasdaq 100 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.