Correlation Between Inverse Nasdaq-100 and Biotechnology Fund

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

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

Diversification Opportunities for Inverse Nasdaq-100 and Biotechnology Fund

0.34

Correlation Coefficient

Inverse Nasdaq-100  Biotechnology Fund

Weak diversification

The 3 months correlation between Inverse and BIOTECHNOLOGY is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Inverse Nasdaq 100 Strategy and Biotechnology Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biotechnology Fund Class and Inverse Nasdaq-100 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 Inverse Nasdaq 100 Strategy are associated (or correlated) with Biotechnology Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biotechnology Fund Class has no effect on the direction of Inverse Nasdaq-100 i.e., Inverse Nasdaq-100 and Biotechnology Fund go up and down completely randomly.

Pair Corralation between Inverse Nasdaq-100 and Biotechnology Fund

Assuming the 90 days horizon Inverse Nasdaq 100 Strategy is expected to under-perform the Biotechnology Fund. But the mutual fund apears to be less risky and, when comparing its historical volatility, Inverse Nasdaq 100 Strategy is 1.01 times less risky than Biotechnology Fund. The mutual fund trades about -0.06 of its potential returns per unit of risk. The Biotechnology Fund Class is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  7,121  in Biotechnology Fund Class on August 30, 2024 and sell it today you would lose (210.00) from holding Biotechnology Fund Class or give up 2.95% of portfolio value over 90 days.

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

Inverse Nasdaq 100 Strategy  vs.  Biotechnology Fund Class

Inverse Nasdaq 100

Risk-Adjusted Performance

0 of 100

Very Weak

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

Biotechnology Fund Class

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Inverse Nasdaq-100 and Biotechnology Fund

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

The idea behind Inverse Nasdaq 100 Strategy and Biotechnology Fund Class 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.

Check out your portfolio center.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.