Correlation Between Nasdaq-100(r) and American Funds

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

Diversification Opportunities for Nasdaq-100(r) and American Funds

0.2

Correlation Coefficient

Nasdaq-100(r)  American Funds

Modest diversification

The 3 months correlation between Nasdaq-100(r) and American is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 2x Strategy and American Funds Preservation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Prese 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 American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Prese has no effect on the direction of Nasdaq-100(r) i.e., Nasdaq-100(r) and American Funds go up and down completely randomly.

Pair Corralation between Nasdaq-100(r) and American Funds

Assuming the 90 days horizon Nasdaq 100 2x Strategy is expected to generate 17.87 times more return on investment than American Funds. However, Nasdaq-100(r) is 17.87 times more volatile than American Funds Preservation. It trades about 0.02 of its potential returns per unit of risk. American Funds Preservation is currently generating about 0.02 per unit of risk. If you would invest  39,900  in Nasdaq 100 2x Strategy on October 20, 2024 and sell it today you would earn a total of  209.00  from holding Nasdaq 100 2x Strategy or generate 0.52% return on investment over 90 days.

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

Nasdaq 100 2x Strategy  vs.  American Funds Preservation

Nasdaq 100 2x

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq 100 2x Strategy are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Nasdaq-100(r) is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

American Funds Prese

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds Preservation are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, American Funds 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 American Funds

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

The idea behind Nasdaq 100 2x Strategy and American Funds Preservation 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.