Correlation Between Inverse Nasdaq and Precious Metals

Can any of the company-specific risk be diversified away by investing in both Inverse Nasdaq and Precious Metals 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 and Precious Metals 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 Precious Metals Fund, you can compare the effects of market volatilities on Inverse Nasdaq and Precious Metals 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 with a short position of Precious Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inverse Nasdaq and Precious Metals.

Diversification Opportunities for Inverse Nasdaq and Precious Metals

0.7

Correlation Coefficient

Inverse Nasdaq  Precious Metals

Poor diversification

The 3 months correlation between Inverse and Precious is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Inverse Nasdaq 100 Strategy and Precious Metals Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Precious Metals and Inverse Nasdaq 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 Precious Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Precious Metals has no effect on the direction of Inverse Nasdaq i.e., Inverse Nasdaq and Precious Metals go up and down completely randomly.

Pair Corralation between Inverse Nasdaq and Precious Metals

Assuming the 90 days horizon Inverse Nasdaq 100 Strategy is expected to generate 0.63 times more return on investment than Precious Metals. However, Inverse Nasdaq 100 Strategy is 1.59 times less risky than Precious Metals. It trades about 0.12 of its potential returns per unit of risk. Precious Metals Fund is currently generating about -0.19 per unit of risk. If you would invest  1,042  in Inverse Nasdaq 100 Strategy on October 12, 2024 and sell it today you would earn a total of  31.00  from holding Inverse Nasdaq 100 Strategy or generate 2.98% return on investment over 90 days.

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

Inverse Nasdaq 100 Strategy  vs.  Precious Metals Fund

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 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Precious Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Precious Metals Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Inverse Nasdaq and Precious Metals

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

The idea behind Inverse Nasdaq 100 Strategy and Precious Metals Fund 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.