Correlation Between Banking Fund and Inverse Nasdaq-100

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

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

Diversification Opportunities for Banking Fund and Inverse Nasdaq-100

-0.85

Correlation Coefficient

Banking Fund  Inverse Nasdaq-100

Pay attention - limited upside

The 3 months correlation between Banking and Inverse is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding Banking Fund Class and Inverse Nasdaq 100 Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Nasdaq 100 and Banking 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 Banking Fund Class are associated (or correlated) with Inverse Nasdaq-100. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Nasdaq 100 has no effect on the direction of Banking Fund i.e., Banking Fund and Inverse Nasdaq-100 go up and down completely randomly.

Pair Corralation between Banking Fund and Inverse Nasdaq-100

Assuming the 90 days horizon Banking Fund Class is expected to under-perform the Inverse Nasdaq-100. But the mutual fund apears to be less risky and, when comparing its historical volatility, Banking Fund Class is 1.02 times less risky than Inverse Nasdaq-100. The mutual fund trades about -0.04 of its potential returns per unit of risk. The Inverse Nasdaq 100 Strategy is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  10,720  in Inverse Nasdaq 100 Strategy on December 30, 2024 and sell it today you would earn a total of  1,081  from holding Inverse Nasdaq 100 Strategy or generate 10.08% return on investment over 90 days.

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

Banking Fund Class  vs.  Inverse Nasdaq 100 Strategy

Banking Fund Class

Risk-Adjusted Performance

Very Weak

Over the last 90 days Banking Fund Class has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward-looking signals, Banking Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Inverse Nasdaq 100

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Inverse Nasdaq 100 Strategy are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Inverse Nasdaq-100 may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Banking Fund and Inverse Nasdaq-100

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

The idea behind Banking Fund Class and Inverse Nasdaq 100 Strategy 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.