Correlation Between Nasdaq-100(r) and Balanced Strategy

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

Diversification Opportunities for Nasdaq-100(r) and Balanced Strategy

0.67

Correlation Coefficient

Nasdaq-100(r)  Balanced Strategy

Poor diversification

The 3 months correlation between Nasdaq-100(r) and Balanced is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 2x Strategy and Balanced Strategy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Balanced Strategy 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 Balanced Strategy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Balanced Strategy has no effect on the direction of Nasdaq-100(r) i.e., Nasdaq-100(r) and Balanced Strategy go up and down completely randomly.

Pair Corralation between Nasdaq-100(r) and Balanced Strategy

Assuming the 90 days horizon Nasdaq 100 2x Strategy is expected to under-perform the Balanced Strategy. In addition to that, Nasdaq-100(r) is 5.21 times more volatile than Balanced Strategy Fund. It trades about -0.2 of its total potential returns per unit of risk. Balanced Strategy Fund is currently generating about -0.24 per unit of volatility. If you would invest  1,052  in Balanced Strategy Fund on October 12, 2024 and sell it today you would lose (31.00) from holding Balanced Strategy Fund or give up 2.95% of portfolio value over 90 days.

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

Nasdaq 100 2x Strategy  vs.  Balanced Strategy Fund

Nasdaq 100 2x

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nasdaq 100 2x Strategy has generated negative risk-adjusted returns adding no value to fund investors. 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.

Balanced Strategy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Balanced Strategy Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Balanced Strategy 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 Balanced Strategy

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

The idea behind Nasdaq 100 2x Strategy and Balanced Strategy Fund 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.