Correlation Between Nasdaq-100(r) and Financials Ultrasector

Can any of the company-specific risk be diversified away by investing in both Nasdaq-100(r) and Financials Ultrasector 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 Financials Ultrasector 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 Financials Ultrasector Profund, you can compare the effects of market volatilities on Nasdaq-100(r) and Financials Ultrasector 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 Financials Ultrasector. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq-100(r) and Financials Ultrasector.

Diversification Opportunities for Nasdaq-100(r) and Financials Ultrasector

0.79

Correlation Coefficient

Nasdaq-100(r)  Financials Ultrasector

Poor diversification

The 3 months correlation between Nasdaq-100(r) and Financials is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 2x Strategy and Financials Ultrasector Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financials Ultrasector 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 Financials Ultrasector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financials Ultrasector has no effect on the direction of Nasdaq-100(r) i.e., Nasdaq-100(r) and Financials Ultrasector go up and down completely randomly.

Pair Corralation between Nasdaq-100(r) and Financials Ultrasector

Assuming the 90 days horizon Nasdaq-100(r) is expected to generate 1.31 times less return on investment than Financials Ultrasector. In addition to that, Nasdaq-100(r) is 1.38 times more volatile than Financials Ultrasector Profund. It trades about 0.05 of its total potential returns per unit of risk. Financials Ultrasector Profund is currently generating about 0.08 per unit of volatility. If you would invest  3,101  in Financials Ultrasector Profund on October 7, 2024 and sell it today you would earn a total of  264.00  from holding Financials Ultrasector Profund or generate 8.51% return on investment over 90 days.

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

Nasdaq 100 2x Strategy  vs.  Financials Ultrasector Profund

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.

Financials Ultrasector

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Financials Ultrasector Profund are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Financials Ultrasector may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Nasdaq-100(r) and Financials Ultrasector

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

The idea behind Nasdaq 100 2x Strategy and Financials Ultrasector Profund 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.