Correlation Between Nasdaq 100 and Frost Kempner

Can any of the company-specific risk be diversified away by investing in both Nasdaq 100 and Frost Kempner 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 and Frost Kempner 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 Frost Kempner Multi Cap, you can compare the effects of market volatilities on Nasdaq 100 and Frost Kempner 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 with a short position of Frost Kempner. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq 100 and Frost Kempner.

Diversification Opportunities for Nasdaq 100 and Frost Kempner

0.86

Correlation Coefficient

Nasdaq 100  Frost Kempner

Very poor diversification

The 3 months correlation between Nasdaq and Frost is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 2x Strategy and Frost Kempner Multi Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frost Kempner Multi and 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 Nasdaq 100 2x Strategy are associated (or correlated) with Frost Kempner. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frost Kempner Multi has no effect on the direction of Nasdaq 100 i.e., Nasdaq 100 and Frost Kempner go up and down completely randomly.

Pair Corralation between Nasdaq 100 and Frost Kempner

Assuming the 90 days horizon Nasdaq 100 2x Strategy is expected to generate 3.68 times more return on investment than Frost Kempner. However, Nasdaq 100 is 3.68 times more volatile than Frost Kempner Multi Cap. It trades about 0.03 of its potential returns per unit of risk. Frost Kempner Multi Cap is currently generating about 0.07 per unit of risk. If you would invest  39,048  in Nasdaq 100 2x Strategy on September 17, 2024 and sell it today you would earn a total of  2,796  from holding Nasdaq 100 2x Strategy or generate 7.16% 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.  Frost Kempner Multi Cap

Nasdaq 100 2x

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq 100 2x Strategy are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Nasdaq 100 showed solid returns over the last few months and may actually be approaching a breakup point.

Frost Kempner Multi

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Frost Kempner Multi Cap are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Frost Kempner 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 and Frost Kempner

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

The idea behind Nasdaq 100 2x Strategy and Frost Kempner Multi Cap 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.