Correlation Between Basic Materials and Rydex Inverse

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

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

Diversification Opportunities for Basic Materials and Rydex Inverse

0.5

Correlation Coefficient

Basic Materials  Rydex Inverse

Very weak diversification

The 3 months correlation between Basic and Rydex is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials Fund and Rydex Inverse Nasdaq 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rydex Inverse Nasdaq and Basic Materials 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 Basic Materials Fund are associated (or correlated) with Rydex Inverse. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rydex Inverse Nasdaq has no effect on the direction of Basic Materials i.e., Basic Materials and Rydex Inverse go up and down completely randomly.

Pair Corralation between Basic Materials and Rydex Inverse

Assuming the 90 days horizon Basic Materials Fund is expected to under-perform the Rydex Inverse. In addition to that, Basic Materials is 1.28 times more volatile than Rydex Inverse Nasdaq 100. It trades about -0.27 of its total potential returns per unit of risk. Rydex Inverse Nasdaq 100 is currently generating about 0.27 per unit of volatility. If you would invest  963.00  in Rydex Inverse Nasdaq 100 on October 16, 2024 and sell it today you would earn a total of  123.00  from holding Rydex Inverse Nasdaq 100 or generate 12.77% return on investment over 90 days.

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

Basic Materials Fund  vs.  Rydex Inverse Nasdaq 100

Basic Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Basic Materials 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 forward indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Rydex Inverse Nasdaq

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Basic Materials and Rydex Inverse

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

The idea behind Basic Materials Fund and Rydex Inverse Nasdaq 100 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.