Correlation Between Nasdaq-100 Fund and Large Cap

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

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

Diversification Opportunities for Nasdaq-100 Fund and Large Cap

0.9

Correlation Coefficient

Nasdaq-100 Fund  Large Cap

Almost no diversification

The 3 months correlation between Nasdaq-100 and Large is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 Fund Class and Large Cap E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Cap E and Nasdaq-100 Fund 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 Nasdaq 100 Fund Class are associated (or correlated) with Large Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Cap E has no effect on the direction of Nasdaq-100 Fund i.e., Nasdaq-100 Fund and Large Cap go up and down completely randomly.

Pair Corralation between Nasdaq-100 Fund and Large Cap

Assuming the 90 days horizon Nasdaq 100 Fund Class is expected to under-perform the Large Cap. In addition to that, Nasdaq-100 Fund is 1.52 times more volatile than Large Cap E. It trades about -0.08 of its total potential returns per unit of risk. Large Cap E is currently generating about -0.04 per unit of volatility. If you would invest  2,036  in Large Cap E on December 29, 2024 and sell it today you would lose (46.00) from holding Large Cap E or give up 2.26% of portfolio value over 90 days.

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

Nasdaq 100 Fund Class  vs.  Large Cap E

Nasdaq 100 Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nasdaq 100 Fund Class 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.

Large Cap E

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Nasdaq-100 Fund and Large Cap

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

The idea behind Nasdaq 100 Fund Class and Large Cap E 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.