Correlation Between Nasdaq-100(r) and Amcap Fund

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

By analyzing existing cross correlation between Nasdaq 100 2x Strategy and Amcap Fund Class, you can compare the effects of market volatilities on Nasdaq-100(r) and Amcap Fund 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(r) with a short position of Amcap Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq-100(r) and Amcap Fund.

Diversification Opportunities for Nasdaq-100(r) and Amcap Fund

0.83

Correlation Coefficient

Nasdaq-100(r)  Amcap Fund

Very poor diversification

The 3 months correlation between Nasdaq-100(r) and Amcap is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 2x Strategy and Amcap Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amcap Fund Class and Nasdaq-100(r) 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 2x Strategy are associated (or correlated) with Amcap Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amcap Fund Class has no effect on the direction of Nasdaq-100(r) i.e., Nasdaq-100(r) and Amcap Fund go up and down completely randomly.

Pair Corralation between Nasdaq-100(r) and Amcap Fund

Assuming the 90 days horizon Nasdaq 100 2x Strategy is expected to generate 2.1 times more return on investment than Amcap Fund. However, Nasdaq-100(r) is 2.1 times more volatile than Amcap Fund Class. It trades about 0.04 of its potential returns per unit of risk. Amcap Fund Class is currently generating about 0.01 per unit of risk. If you would invest  39,807  in Nasdaq 100 2x Strategy on October 25, 2024 and sell it today you would earn a total of  1,815  from holding Nasdaq 100 2x Strategy or generate 4.56% return on investment over 90 days.

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

Nasdaq 100 2x Strategy  vs.  Amcap Fund Class

Nasdaq 100 2x

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq 100 2x Strategy are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Nasdaq-100(r) may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Amcap Fund Class

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Amcap Fund Class has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Amcap Fund 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(r) and Amcap Fund

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

The idea behind Nasdaq 100 2x Strategy and Amcap Fund Class 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.