Correlation Between Nasdaq 100 and Basic Materials
Can any of the company-specific risk be diversified away by investing in both Nasdaq 100 and Basic Materials 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 Basic Materials 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 Basic Materials Fund, you can compare the effects of market volatilities on Nasdaq 100 and Basic Materials 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 Basic Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq 100 and Basic Materials.
Diversification Opportunities for Nasdaq 100 and Basic Materials
-0.11 | Correlation Coefficient |
Good diversification
The 3 months correlation between Nasdaq and Basic is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 2x Strategy and Basic Materials Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Basic Materials 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 Basic Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Basic Materials has no effect on the direction of Nasdaq 100 i.e., Nasdaq 100 and Basic Materials go up and down completely randomly.
Pair Corralation between Nasdaq 100 and Basic Materials
Assuming the 90 days horizon Nasdaq 100 2x Strategy is expected to generate 0.62 times more return on investment than Basic Materials. However, Nasdaq 100 2x Strategy is 1.6 times less risky than Basic Materials. It trades about -0.01 of its potential returns per unit of risk. Basic Materials Fund is currently generating about -0.2 per unit of risk. If you would invest 41,279 in Nasdaq 100 2x Strategy on September 24, 2024 and sell it today you would lose (637.00) from holding Nasdaq 100 2x Strategy or give up 1.54% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 95.24% |
Values | Daily Returns |
Nasdaq 100 2x Strategy vs. Basic Materials Fund
Performance |
Timeline |
Nasdaq 100 2x |
Basic Materials |
Nasdaq 100 and Basic Materials Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Nasdaq 100 and Basic Materials
The main advantage of trading using opposite Nasdaq 100 and Basic Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq 100 position performs unexpectedly, Basic Materials 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 Basic Materials will offset losses from the drop in Basic Materials' long position.Nasdaq 100 vs. Edward Jones Money | Nasdaq 100 vs. Elfun Government Money | Nasdaq 100 vs. Matson Money Equity | Nasdaq 100 vs. Ab Government Exchange |
Basic Materials vs. Basic Materials Fund | Basic Materials vs. Energy Services Fund | Basic Materials vs. Energy Fund Class | Basic Materials vs. Nasdaq 100 2x Strategy |
Check out your portfolio center.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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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