Correlation Between Rising Rates and Short Nasdaq

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

By analyzing existing cross correlation between Rising Rates Opportunity and Short Nasdaq 100 Profund, you can compare the effects of market volatilities on Rising Rates and Short Nasdaq 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 Rising Rates with a short position of Short Nasdaq. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rising Rates and Short Nasdaq.

Diversification Opportunities for Rising Rates and Short Nasdaq

-0.66

Correlation Coefficient

Rising Rates  Short Nasdaq

Excellent diversification

The 3 months correlation between Rising and Short is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Rising Rates Opportunity and Short Nasdaq 100 Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Nasdaq 100 and Rising Rates 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 Rising Rates Opportunity are associated (or correlated) with Short Nasdaq. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Nasdaq 100 has no effect on the direction of Rising Rates i.e., Rising Rates and Short Nasdaq go up and down completely randomly.

Pair Corralation between Rising Rates and Short Nasdaq

Assuming the 90 days horizon Rising Rates Opportunity is expected to generate 0.4 times more return on investment than Short Nasdaq. However, Rising Rates Opportunity is 2.52 times less risky than Short Nasdaq. It trades about 0.13 of its potential returns per unit of risk. Short Nasdaq 100 Profund is currently generating about -0.05 per unit of risk. If you would invest  1,433  in Rising Rates Opportunity on September 22, 2024 and sell it today you would earn a total of  18.00  from holding Rising Rates Opportunity or generate 1.26% return on investment over 90 days.

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

Rising Rates Opportunity  vs.  Short Nasdaq 100 Profund

Rising Rates Opportunity

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rising Rates Opportunity are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Rising Rates may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Short Nasdaq 100

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Short Nasdaq 100 Profund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Short Nasdaq is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Rising Rates and Short Nasdaq

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

The idea behind Rising Rates Opportunity and Short Nasdaq 100 Profund 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .