Correlation Between Inverse Nasdaq-100 and Energy Services

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

Diversification Opportunities for Inverse Nasdaq-100 and Energy Services

-0.3

Correlation Coefficient

Inverse Nasdaq-100  Energy Services

Very good diversification

The 3 months correlation between Inverse and Energy is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Inverse Nasdaq 100 Strategy and Energy Services Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Services 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 Energy Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Services has no effect on the direction of Inverse Nasdaq-100 i.e., Inverse Nasdaq-100 and Energy Services go up and down completely randomly.

Pair Corralation between Inverse Nasdaq-100 and Energy Services

Assuming the 90 days horizon Inverse Nasdaq 100 Strategy is expected to generate 107.34 times more return on investment than Energy Services. However, Inverse Nasdaq-100 is 107.34 times more volatile than Energy Services Fund. It trades about 0.18 of its potential returns per unit of risk. Energy Services Fund is currently generating about -0.14 per unit of risk. If you would invest  1,343  in Inverse Nasdaq 100 Strategy on November 29, 2024 and sell it today you would earn a total of  12,096  from holding Inverse Nasdaq 100 Strategy or generate 900.67% return on investment over 90 days.

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

Inverse Nasdaq 100 Strategy  vs.  Energy Services Fund

Inverse Nasdaq 100

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Inverse Nasdaq 100 Strategy are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak essential indicators, Inverse Nasdaq-100 showed solid returns over the last few months and may actually be approaching a breakup point.

Energy Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days Energy Services Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's fundamental indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Inverse Nasdaq-100 and Energy Services

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

The idea behind Inverse Nasdaq 100 Strategy and Energy Services 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.

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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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.