Correlation Between Nasdaq 100 and Rational Defensive

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

Diversification Opportunities for Nasdaq 100 and Rational Defensive

0.96

Correlation Coefficient

Nasdaq 100  Rational Defensive

Almost no diversification

The 3 months correlation between Nasdaq and Rational is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 2x Strategy and Rational Defensive Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rational Defensive Growth 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 Rational Defensive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rational Defensive Growth has no effect on the direction of Nasdaq 100 i.e., Nasdaq 100 and Rational Defensive go up and down completely randomly.

Pair Corralation between Nasdaq 100 and Rational Defensive

Assuming the 90 days horizon Nasdaq 100 2x Strategy is expected to generate 2.28 times more return on investment than Rational Defensive. However, Nasdaq 100 is 2.28 times more volatile than Rational Defensive Growth. It trades about 0.14 of its potential returns per unit of risk. Rational Defensive Growth is currently generating about 0.24 per unit of risk. If you would invest  35,031  in Nasdaq 100 2x Strategy on September 3, 2024 and sell it today you would earn a total of  6,703  from holding Nasdaq 100 2x Strategy or generate 19.13% return on investment over 90 days.

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

Nasdaq 100 2x Strategy  vs.  Rational Defensive Growth

Nasdaq 100 2x

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq 100 2x Strategy are ranked lower than 11 (%) 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.

Rational Defensive Growth

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rational Defensive Growth are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Rational Defensive showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nasdaq 100 and Rational Defensive

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

The idea behind Nasdaq 100 2x Strategy and Rational Defensive Growth 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.