Correlation Between Nasdaq-100(r) and Nasdaq-100 Fund

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

Diversification Opportunities for Nasdaq-100(r) and Nasdaq-100 Fund

0.77

Correlation Coefficient

Nasdaq-100(r)  Nasdaq-100 Fund

Poor diversification

The 3 months correlation between Nasdaq-100(r) and Nasdaq-100 is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 2x Strategy and Nasdaq 100 Fund Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq 100 Fund 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 Nasdaq-100 Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq 100 Fund has no effect on the direction of Nasdaq-100(r) i.e., Nasdaq-100(r) and Nasdaq-100 Fund go up and down completely randomly.

Pair Corralation between Nasdaq-100(r) and Nasdaq-100 Fund

Assuming the 90 days horizon Nasdaq 100 2x Strategy is expected to generate 1.53 times more return on investment than Nasdaq-100 Fund. However, Nasdaq-100(r) is 1.53 times more volatile than Nasdaq 100 Fund Class. It trades about -0.06 of its potential returns per unit of risk. Nasdaq 100 Fund Class is currently generating about -0.11 per unit of risk. If you would invest  42,648  in Nasdaq 100 2x Strategy on December 1, 2024 and sell it today you would lose (5,024) from holding Nasdaq 100 2x Strategy or give up 11.78% 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.  Nasdaq 100 Fund Class

Nasdaq 100 2x

Risk-Adjusted Performance

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 latest weak performance, the Fund's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Nasdaq 100 Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nasdaq 100 Fund Class has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Nasdaq-100(r) and Nasdaq-100 Fund

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

The idea behind Nasdaq 100 2x Strategy and Nasdaq 100 Fund Class 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.