Correlation Between Inverse Nasdaq-100 and Inverse Dow

Can any of the company-specific risk be diversified away by investing in both Inverse Nasdaq-100 and Inverse Dow 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 Inverse Dow 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 Inverse Dow 2x, you can compare the effects of market volatilities on Inverse Nasdaq-100 and Inverse Dow 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 Inverse Dow. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inverse Nasdaq-100 and Inverse Dow.

Diversification Opportunities for Inverse Nasdaq-100 and Inverse Dow

0.58

Correlation Coefficient

Inverse Nasdaq-100  Inverse Dow

Very weak diversification

The 3 months correlation between Inverse and Inverse is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Inverse Nasdaq 100 Strategy and Inverse Dow 2x in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Dow 2x 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 Inverse Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Dow 2x has no effect on the direction of Inverse Nasdaq-100 i.e., Inverse Nasdaq-100 and Inverse Dow go up and down completely randomly.

Pair Corralation between Inverse Nasdaq-100 and Inverse Dow

Assuming the 90 days horizon Inverse Nasdaq 100 Strategy is expected to under-perform the Inverse Dow. But the mutual fund apears to be less risky and, when comparing its historical volatility, Inverse Nasdaq 100 Strategy is 1.15 times less risky than Inverse Dow. The mutual fund trades about -0.09 of its potential returns per unit of risk. The Inverse Dow 2x is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  4,048  in Inverse Dow 2x on October 4, 2024 and sell it today you would lose (1,208) from holding Inverse Dow 2x or give up 29.84% of portfolio value over 90 days.

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

Inverse Nasdaq 100 Strategy  vs.  Inverse Dow 2x

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 latest weak performance, the Fund's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Inverse Dow 2x

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inverse Dow 2x has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Inverse Dow 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 Inverse Dow

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

The idea behind Inverse Nasdaq 100 Strategy and Inverse Dow 2x 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.